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Appeal Court Rejects Taxing Online Travel Bookings, a Blow to Flagler and Other Counties

| March 1, 2013

Companies like Orbitz have reasons to be full of themselves. (Joe Wolf)

Companies like Orbitz have reasons to be full of themselves. (Joe Wolf)

Rejecting arguments that counties have been shortchanged, a state appeals court Thursday sided with the online-travel industry in a major legal battle about payment of hotel bed taxes.

The 1st District Court of Appeal, in a 2-1 ruling, said companies such as Expedia and Orbitz cannot be forced to pay local tourist-development taxes on part of the money they collect from customers. The majority found that the disputed amounts relate to reservation charges — not to the actual amounts paid to rent hotel rooms — and described the companies as “conduits.”

“In this role, the companies collect the monies owed for the room, including taxes and fees, and pass on to the hotels the money for the room rental and the taxes on the price of the room,” said the opinion, written by Judge Brad Thomas and joined by Judge Marguerite Davis. “The consideration the companies ultimately keep is not for the rental or lease, but for their service in facilitating the reservation.”

But Judge Philip Padovano dissented, writing that the taxes should be based on the overall amount that customers pay. He wrote that he did not think state law was “ambiguous” on the issue, a rationale that a Leon County circuit judge cited last year in ruling in favor of the online-travel companies.

“(It) is not confusing or unclear,” Padovano wrote. “It imposes a tax on the funds paid by a tourist to rent a room in a hotel. The matter is no more complicated than that.”

The lawsuit — and others like it in Florida and across the country — focuses on a major part of the way online-travel companies do business. They serve as sorts of middlemen between travelers and hotels, charging customers for room rentals and fees related to providing the service.

If online-travel companies were forced to pay tourist-development taxes on the full amounts they collect from customers, not just on the amounts that go for room rentals, it would cost the industry millions of dollars a year.

Thursday’s ruling upheld a decision last April by Leon County Circuit Judge James Shelfer in a case that was filed in 2009 and has involved 17 counties, including Flagler. State lawmakers in recent years also have grappled with the tax issue but have not agreed on a bill that could help resolve the disputes about the taxes.

During oral arguments earlier this month, Thomas alluded to the Legislature considering bills about the issue, an issue he also mentioned in the 13-page majority opinion.

“As the trial court (Shelfer) here correctly determined, 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,” Thomas wrote.

But Padovano wrote that, while the issue is “emerging” in Florida, courts in some other states have ruled against the online-travel industry.

“There are certainly differences in the wording of the statutes in these cases, but the fundamental principle is the same in all of them,” he wrote. “The tax at issue is a tax on the total amount of money a tourist pays to stay in a hotel room.”

The counties that have been involved in the case are Alachua, Charlotte, Escambia, Flagler, Hillsborough, Lee, Leon, Manatee, Nassau, Okaloosa, Pasco, Pinellas, Polk, St. Johns, Seminole, Wakulla and Walton.

Another Leon County circuit judge, Terry Lewis, also sided with online-travel companies last year in a case spearheaded by Broward County. A notice of appeal was filed Feb. 5 in that case, according to a docket on the 1st District Court of Appeal website.

–Jim Saunders, News Service of Florida

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2 Responses for “Appeal Court Rejects Taxing Online Travel Bookings, a Blow to Flagler and Other Counties”

  1. Sherry Epley says:

    Taxing internet purchases is an extremely complex issue, and one not to be taken lightly. In the travel industry, we are now our own travel agents. While professional travel agents are almost a thing of the past, we now have many more travel options/price comparisons/quality reviews open to us. Please let’s not tax another industry to death! Let the on-line market mature and develop a bit before we impose restrictions that will only end up costs us more. The taxing agencies should find another source of revenue.

  2. Anonymous says:

    Flagler can’t manage what they have now; and they don’t know how to live within their means. They would waste the money on their personal agenda like the airport, pies across America, or inflating Craig Coffey and Al Hadeed’s salary.

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