In City of Rome v. Hotels.com, L.P., Case No. 12-14588 (decided December 13, 2013), municipalities in Georgia lost their bid to recover back taxes they allege should have been collected by online travel companies.
Online travel companies purchase blocks of hotel rooms at a “wholesale” price. They then sell those rooms to travelers at a higher “retail” price. Many local governments in Georgia have a hotel/motel tax that requires the person renting a room to pay a tax that the hotel collects. In dealing with online travel companies, hotels were collecting and remitting taxes based on the wholesale price paid by the online travel company rather than on the retail price paid to the online travel company by the customer. That produced a series of litigations that resulted in a holding by the Georgia Supreme Court that the online travel companies were obligated to collect and remit the hotel/motel taxes based on the retail priced paid by the customers. City of Atlanta v. Hotels.com, 289 Ga. 323 (2011).
In the City of Rome case, a class of cities and counties in Georgia were attempting to obtain relief against the online travel companies for the uncollected taxes. As reported in the Eleventh Circuit’s decision, the plaintiffs settled their claims with the online travel companies for transactions occurring after May 16, 2011. From that point forward, the online travel companies agreed to collect and remit the taxes based on the retail prices paid by customers. However, the litigation continued with the cities and counties seeking to recover additional taxes on transactions that occurred before May 16, 2011.
The Eleventh Circuit affirmed a summary judgment granted by the District Court against the plaintiffs. The Court held that under the relevant statute, the online travel companies had an obligation to remit the taxes “actually collected.” Because the online travel companies had never collected taxes based on the retail rate, there was nothing for them to remit. The Georgia Supreme Court had previously held that the relevant tax statutes did not provide an enforcement mechanism that a municipality could use against a third-party tax collector such as an online travel company. The statute’s enforcement mechanism worked only against a hotel or motel. Expedia, Inc. v. City of Columbus, 285 Ga. 684 (2009).
This decision finally brings to an end this long-running dispute between local governments in Georgia and online travel companies.