City & Cnty. of Denver v. Expedia, Inc.

Decision Date24 April 2017
Docket NumberSupreme Court Case No. 14SC634
Parties CITY AND COUNTY OF DENVER, Colorado ; Brendan Hanlon in his official capacity as the Chief Financial Officer of the City and County of Denver; and Bill Speckman, in his official capacity as Hearing Officer designated by the Chief Financial Officer, Petitioners, v. EXPEDIA, INC.;, L.P.; Hotwire, Inc.; Orbitz, LLC;, Incorporated;, LLC; Travel Webb LLC; LP; and Trip Network, Inc. d/b/a, Respondents.
CourtColorado Supreme Court

Attorneys for Petitioners: Lewis Roca Rothgerber Christie LLP, Michael D. Plachy, Thomas M. Rogers, Denver, Colorado, Hagens Berman Sobol Shapiro LLP, Andrew M. Volk, Christopher A. O'Hara, Seattle, Washington, City Attorney for the City and County of Denver, Charles T. Solomon, Assistant City Attorney, Denver, Colorado

Attorneys for Respondents: Zonies Law LLC, Sean Connelly, Denver, Colorado, Davis Graham & Stubbs, Jason M. Lynch, Denver, Colorado

Attorneys for Amici Curiae Colorado Municipal League and Colorado Association of Ski Towns: Colorado Municipal League, Geoffrey T. Wilson, Denver, Colorado

Attorneys for Amici Curiae Visit Denver and Colorado Hotel and Lodging Association: Brownstein Hyatt Farber & Schreck, LLP, Richard B. Benenson, Denver, Colorado

Attorneys for Amicus Curiae American Society of Travel Agents, Inc.: Blain Myhre LLC, Blain Myhre, Englewood, Colorado

En Banc

JUSTICE COATS announced the judgment of the Court and delivered an opinion, in which JUSTICE MÁRQUEZ and JUSTICE BOATRIGHT join.

¶1 Denver petitioned for review of the court of appeals opinion reversing the judgment of the district court and remanding with directions to vacate the subject tax assessments against Expedia and the other respondent online travel companies ("OTCs"). See Expedia, Inc. v. City & Cty. of Denver, 2014 COA 87, 405 P.3d 251. The district court had largely upheld a Denver hearing officer's denial of protests by Expedia and the other OTCs to Denver's claim for unpaid taxes, interest, and penalties, assertedly due according to Denver's ordinance imposing a lodger's tax. Unlike the hearing officer and district court, the court of appeals concluded that the city lodger's tax article was at least ambiguous with regard to both the purchase price paid or charged for lodging, upon which the tax is to be levied, and the status of the OTCs as vendors, upon which the ordinance imposes the responsibility to collect the tax and remit it to the city; and the intermediate appellate court considered itself obligated to resolve all ambiguities in the lodger's tax article, being a tax statute, in favor of the OTCs.

¶2 The application of well-accepted aids to statutory construction leads to the conclusion that the fair and reasonable interpretation of Denver's lodger's tax article is that it imposes a duty on the OTCs to collect and remit the prescribed tax on the purchase price of any lodging they sell, to include not only the amount they have contracted with the hotel to charge and return but also the amount of their markup. The judgment of the court of appeals is therefore reversed, and the matter is remanded for consideration of the remaining issues raised on appeal by the parties.


¶3 In July 2010, the City and County of Denver issued nine Notices of Final Determination, Assessment and Demand for Payment against various online travel companies: Expedia, Inc.; LP; Hotwire, Inc.; Orbitz, LLC; Trip Network, Inc.; Incorporated; Travelweb, LLC;, LLC; and LP. The Notices claimed unpaid taxes, penalties, and interest due according to the city lodger's tax article, Denver Revised Municipal Code ("D.R.M.C.") §§ 53-166 to -236, for the period from January 2001 through April 2010, totaling over $40 million.1 These online companies filed nearly identical protests, requesting hearings before a Denver Department of Finance hearing officer, and the protests were consolidated by stipulation.

¶4 Based on the stipulated evidence, including depositions and other materials from litigation in other jurisdictions and internal materials of the OTCs themselves explaining their operational methods and practices, the hearing officer found, and the parties do not dispute, that the OTCs operate under two basic business models. Under what they describe as the "agency model," he found that the OTCs refer customers to hotels. Lodgers then transact directly with the hotels, and the OTCs receive commissions in separate transactions. Under what they describe as the "merchant model," by contrast, the OTCs operate in the transaction somewhere between lodgers and hotels. Lodgers transact with the OTCs, prepaying for reservations, and the OTCs later pass part of those payments along to the hotels. The OTCs, not the hotels, appear as the merchant of record on lodgers' credit card statements—hence the term "merchant model." These two models have different pricing structures, about which again the parties do not disagree. In the agency model, the hotels maintain exclusive control over the purchase price paid by lodgers. In the merchant model, by contrast, the hotels set a rate they will accept, which the OTCs refer to as a "net rate," but the hotels grant the OTCs discretion, within designated limits, to set the price ultimately to be paid by the lodger. The OTCs then sell reservations to lodgers at that price, pass the amount of the so-called "net rate" plus a tax surcharge along to the hotels, and retain the difference as their own compensation.

¶5 For agency-model transactions, the hotels collect and remit lodger's taxes, just as they do for all other traditional bookings.2 For merchant-model transactions, the hotels, as a matter of practice, have also been claiming the transactions on their own lodger's tax returns, but because the hotels do not transact directly with the lodgers, and because the hotels typically do not receive payment at the time of the transaction with the lodger, the process of collecting and remitting the lodgers' tax to the city is, in current practice, somewhat more convoluted. In practice, the OTCs typically collect a "surcharge" from the lodger at the time the lodger initially pays for a reservation. The OTCs then transmit that tax surcharge to the hotel along with the so-called "net rate," which transmission ordinarily occurs after the lodger checks out. Finally, the hotel remits the surcharged amount to the city, along with its other lodger's tax receipts for the month.

¶6 When booking reservations, the OTCs typically disclose two charges to lodgers. The first amount is the room rate, which is presented to the lodger as a single per-night rate that includes both the discounted rate to be returned to the hotel and the OTC's markup on that rate. The second amount is a taxes-and-fees charge, which is presented to the lodger as a single per-transaction amount but which actually has two components: what the OTCs refer to as a "service fee" and a surcharge for taxes.3 Typically, the parties agree, the tax surcharge is computed on the "net rate," while the service fees are computed on the price charged to the lodger plus taxes.

¶7 To illustrate, Denver relied on the following example during administrative proceedings, using hypothetical numbers from the deposition of Expedia, Inc.'s corporate representative. Assume a website sells a reservation for $100, of which $75 will be paid to the hotel as the net rate and $25 will be retained by the OTC as its markup. If the applicable lodger's tax is 10%, it will be applied to the $75 net rate and the tax surcharge will therefore be $7.50. If the OTC's service charge is 5.5%, it will be applied to the so-called "retail price" plus taxes—i.e., to $107.50—and the service fee will therefore be $5.91. The lodger will see a room rate of $100 and a taxes-and-fees charge of $13.41, and will pay a total of $113.41. The OTC will retain both the markup and the service fee ($25 plus $5.91, totaling $30.91)4 and will eventually remit to the hotel the "net rate" and tax surcharge ($75 plus $7.50, totaling $82.50). The hotel then will remit the tax receipts ($7.50) on its next monthly lodger's tax return.

¶8 The hearing officer held that this practice for merchant-model transactions does not comport with the mandates of the city lodger's tax article for two reasons. First, he concluded that the OTCs' markups and service fees are "directly connected with" furnishing lodging, as contemplated by section 53-171(c) of the D.R.M.C., and therefore must be included within the tax base. Second, he concluded that the OTCs are "vendors," within the contemplation of section 53-170(8), and are therefore responsible for collecting and remitting taxes directly to the city. The hearing officer therefore upheld Denver's Notices.5

¶9 The OTCs sought judicial review as permitted by C.R.C.P. 106(a)(4). The district court rejected Denver's position regarding the applicable statute of limitations, holding instead that Denver could assert liabilities for only the preceding three years, but otherwise it upheld the hearing officer's determinations. On cross-appeals by the parties, the court of appeals concluded that the city lodger's tax article is at least ambiguous as to both the question whether the OTCs are "vendors," with collect-and-remit obligations, and the question whether the tax base includes the OTCs' markups and service fees. Relying on its understanding that tax statutes must be construed strictly, the intermediate appellate court construed both provisions against the promulgating authority and ordered the case remanded with directions to vacate Denver's Notices.6

¶10 Denver petitioned this court for a writ of certiorari.


¶11 By ordinance, the City and County of Denver imposes a tax on the privilege of purchasing lodging in the city, and the tax thus imposed is to be paid by the person exercising the privilege. D.R.M.C. § 53-171(a)....

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