The CASE HISTORY
On Tuesday, the Florida Supreme Court issued an Order saying it will hear a case (i.e. accepted jurisdiction) of 17 Florida counties claiming tourism taxes from online travel booking websites Expedia, Hotels.com, Hotwire, Orbitz, Priceline, Travelocity, Travelweb, Lowestfare.com, and cheaptickets.com.

The question is whether online travel booking companies, such as the named defendants, should be taxed for fees they collect for making the booking, above the portion paid to the booked hotel. The Florida Court of Appeal, First Dist., previously found on February 28, 2013 (full opinion PDF is part of Petition to FL Supreme Court) that Tourist Development Tax is not applicable to the additional sums of money earned by the booking companies, i.e. those funds are not taxable. The appellate court further emphasized “it is for the Legislature, and not the judiciary, to decide whether to apply the Tax to the full amount that the Companies charge their customers who utilize their website to obtain a hotel reservation.”

Taxable Amount: What a customer pays online or what the hotel receives?

Taxable Amount: What a customer pays online or what the hotel receives?

The trial court noted that the tax is currently paid only on the amount received by hotels, not the “mark-up realized” under the online purchase/payment model (the “Merchant Model” as the court calls it). The appellate court, in a statutory interpretation analysis argument, agreed with the lower court. Nevertheless, with a 2-1 vote, one appellate justice dissented, stating in his written dissent:

The local option tourist development tax authorized by [Florida law] is a tax on the amount of money a tourist pays to stay in a hotel in Florida. The portion of those funds earned by an online travel company, whether remitted by the hotel after payment of the bill or retained initially by the travel company at the time of the reservation, is subject to the tax. This conclusion is required not only by precedent we are bound to follow, but also by the plain language of the statute. [travelblawg’s emphasis]

 The dissent went on to discuss cases in Georgia and South Carolina:

For example, in Expedia, Inc. v. City of Columbus, 681 S.E 2d 122 (Ga. 2009), the Supreme Court of Georgia held that an online travel company using the merchant model must pay a local accommodation tax on the portion of the hotel bill it retains when booking the room. Because the statute at issue in that case imposed a tax on the “lodging charges actually collected” from the tourist, the court concluded that the “wholesale rate” the hotel charged the travel company could not be the rate upon which the tax was computed. Likewise in City of Charleston, S.C. v. Hotels.com, LP, 586 F. Supp.2d 538 (D.S.C. 2008), a federal court held than an online travel company was required to pay the local accommodation tax on the portion of the hotel bill it retained for booking rooms in the City of Charleston. [travelblawg’s emphasis]

The TAKEAWAY
Typical criteria for state Supreme Court’s decisions to hear cases (they cannot hear them all!) includes a split of opinions and a question of “great public importance” at issue. This case seems to have both, with a split appellate decision’s dissent citing both opposing legal precedent case law and interpreting the statutory analysis differently by its plain language alone (as opposed to digging deeper into legislative history, for example).

With reports just last year putting losses of tax revenues due to online bookings in Orange Co., Florida alone at $28 million in 2012, and over $200 million in the past decade, watch for:

  1. Local Florida governments and trickle down benefactors (e.g. schools) giving this case great attention (for example, note that on May 29, 2013 the School Board of Volusia Co., FL already filed its Notice of Intent to File An Amicus Brief and others may do the same now with the case accepted); and
  2. Any decision of the Florida Supreme Court may be short lived, or even moot, if the FL Legislature subsequently acts to clarify the taxing law(s).

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