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Like the Mafia, government thieves want a cut of everything you do.
Arizona cities say tax owed by travel websites Legal action vs. companies mulled by Dustin Gardiner - Jul. 15, 2012 09:56 PM The Republic | azcentral.com A group of Arizona cities contends online travel sites such as Expedia and Orbitz often are not paying enough in taxes, depriving local governments of precious revenue. Cities from around the state are teaming up in an effort to reclaim the taxes they say have gone unpaid for years by Web-based travel companies. Phoenix, Tempe, Scottsdale and Tucson are among the cities looking to jointly prosecute the companies. At the center of the dispute is a disagreement over whether the travel websites should be taxed on the amount they pay a hotel for rooms vs. the higher price a consumer pays when buying online. The websites typically have agreements with hotels and motels to sell rooms that might otherwise be empty. Cities argue such companies should be paying taxes on the final price of the rooms, not the discounted rate that the companies pay. A preliminary audit conducted by Arizona cities suggests that travel companies owe at least $8 million in unremitted taxes, though some believe the actual amount could be much higher. A city of Phoenix attorney said audit documents could not be released, citing a city ordinance that prohibits divulging taxpayer information in most cases. "The city has to make sure that people pay the appropriate amount of taxes," Phoenix Mayor Greg Stanton said. "It's not fair to mom-and-pop businesses that do pay the fair amount that there would be any exceptions just because you're working in an online environment." The cities contend at least four online travel sites, Expedia, Orbitz, Priceline and Travelocity, owe the taxes. Similar legal battles have played out in courthouses across the country, sometimes with bad results for cities and counties. Of 27 lawsuits that have been filed over the years, seven have resulted in outcomes that partially or fully favored governments, according to the Interactive Travel Services Association, a trade group that represents travel sites. Joseph Rubin, president of the association, said efforts by cities and counties to sue for unremitted taxes have been "fruitless wastes of taxpayer funds." Such a lawsuit could potentially hurt Arizona's crucial tourism industry if online companies scale back their dealings in the state, he said. "We would urge Arizona cities not to fall into the trap that they believe would be easy money," Rubin said. "These suits overwhelmingly fail." Rubin said municipalities have inaccurately tried to portray the companies as hotel operators. In reality, he said, their business model is more complex. Travel websites market rooms for hotels and earn a service fee, but they don't buy rooms on the front end and resell them, Rubin said. However, attorney Brad Holm, whose firm, Holm Wright Hyde & Hays, is advising the Arizona cities, is confident about their position. He said if travel companies are working as a placement service for hotels and collecting a commission, that only bolsters claims for unremitted taxes. Holm cited the broker provision in the state's Model City Tax Code. It generally requires that brokers file and remit taxes on any item or asset they're selling for someone else without any deduction for their commission or fees. If the Arizona cities seeking the taxes are unsuccessful, they will not be responsible for any legal costs, Holm said. But if they win any litigation, the law firm will receive about 27 percent of the proceeds. |