Suburbs sue online travel firms over hotel taxes
BY MIKE NOLAN firstname.lastname@example.org April 8, 2013 12:18PM
Hotels in Tinley Park, Illinois, Thursday, April 4, 2013. | Joseph P. Meier~Sun-Times Media
Updated: April 8, 2013 3:12PM
At least three Southland communities are part of a federal lawsuit filed Friday accusing online hotel booking companies of failing to turn over hotel occupancy taxes levied by those towns.
The complaint names companies including Expedia, Priceline and Travelocity, and suburbs taking part in the lawsuit include Bedford Park, Oak Lawn and Orland Hills.
While they are not named as plaintiffs in the litigation, Orland Park and Tinley Park were expected to join in the lawsuit, Michael Krzak, a partner with Clifford Law Offices, said.
Chicago-based Clifford is one of four law firms representing the communities in the litigation and said the case addresses “ongoing tax evasion” by the online companies. The villages are not paying any legal fees to be part of the lawsuit, and the law firms would recoup their costs from any potential judgment or settlement with the online companies.
Several suburbs impose hotel occupancy taxes on people who rent rooms, but the lawsuit alleges the online companies are turning over only part of what the towns are owed. The online travel companies, through agreements with hotels, obtain rooms at a reduced or wholesale rate and charge hotel guests a higher, or retail, rate. The difference represents a service fee the hotels pay to the online firms.
Guests pay the tax based on the retail rate, but the lawsuit alleges the online firms remit taxes based on the lower wholesale rate.
Robin Reck, spokeswoman for the Travel Technology Association, a trade group representing the online travel companies, said the firms are not skipping out on paying the local hotel tax amounts.
“All necessary tax revenues collected by OTCs are properly transferred in full to our hotel partners,” she said in an email.
“The status quo is working, the proper amounts of taxes on room rent are being paid over by the OTCs to the hotels,” Reck said.
It’s unclear how much villages might be missing in hotel tax revenue. Joe La Margo, a spokesman for Orland Park, said the village has just one hotel, so the assumption is the dollar figure isn’t high.
Scott Niehaus, village manager in Tinley Park, which has several hotels clustered near the Harlem Avenue/Interstate 80 interchange, said the village didn’t have an estimate on what it might have been shorted on hotel taxes.
Even if communities recapture a relatively small amount of money through the litigation, officials said it would be worthwhile because the villages aren’t bearing any of the cost of pursuing the lawsuit.
Some 30 similar lawsuits have been filed around the country, with the courts ruling in favor of the online companies in a majority of cases. In a handful of cases, companies were required to pay back what Clifford Law Offices said amounted to “hundreds of millions of dollars” in back taxes and penalties.