In City of Atlanta v. Hotels.com, 654 S.E.2d 166, 2007 WL 3120936 (Ga. App. Ct. Oct. 26, 2007), the Georgia Court of Appeals recently affirmed a trial court’s dismissal of the City of Atlanta’s complaint against 17 online travel companies. In its complaint, the City argued that the travel companies were sellers and resellers of hotel rooms and should have been collecting and remitting hotel taxes under the City’s hotel/motel tax ordinance.

The City, however, did not assess the taxes or otherwise seek to collect the taxes through its own administrative procedures; rather, it simply filed suit in Georgia Superior Court. The defendants argued that the court therefore lacked subject matter jurisdiction to hear the case because the City had not exhausted its administrative remedies prior to filing suit. The Superior Court agreed, finding that the doctrine of exhaustion is in fact a two-way street that applies to both taxpayers and tax authorities.

The Court of Appeals affirmed, holding that the doctrine of exhaustion can be applied against the government when exhausting available administrative remedies is a precondition to filing suit. The court noted that other jurisdictions had applied the same rule and then rejected the government’s argument that, on the facts of this case, exhaustion of administrative remedies was not a prerequisite to filing suit.