City of Atlanta v. Hotels.Com, L.P.

• Decision Date: 23 March 2009
• Docket Number: No. S08G0568.,S08G0568.
• Citation: 674 S.E.2d 898
• Parties: CITY OF ATLANTA v. HOTELS.COM, L.P., et al.
• Court: Georgia Supreme Court

674 S.E.2d 898

CITY OF ATLANTA v. HOTELS.COM, L.P., et al.

No. S08G0568.

Supreme Court of Georgia.

March 23, 2009.

Reconsideration Denied April 9, 2009.

Pope, McGlamry, Kilpatrick & Morrison, Charles N. Pope, Neal K. Pope, Michael L. McGlamry, R. Timothy Morrison, Wade H. Tomlinson III, William U. Norwood III, Columbus, Bryan, Cave, Powell & Goldstein, Robert M. Travis, L. Lin Wood Jr., John R. Bielema Jr., Atlanta, for appellant.

Bondurant, Mixson & Elmore, Emmet J. Bondurant, Atlanta, Jones Day, Edward K. Smith, Robin A. Schmahl, James P. Karen, Deborah S. Sloan, Dallas, TX, Morrison & Foerster, Los Angeles, CA, David F. McDoweel, Skadden, Arps, Slate, Meagher & Flom, Karen L. Valihura, Wilmington, DE, Darrel J. Hieber, Los Angeles, McDermott, Will & Emery, Elizabeth B. Herrington, Katten, Muchin & Rosenman, David J. Stagman, Chicago, IL, Carol L. Morris, Alpharetta, for appellees.

Lamar, Archer & Cofrin, Robert C. Lamar, David W. Davenport, Atlanta, Vroon &

Crongeyer, John W. Crongeyer, Walter J. Gordon, Sr., Hartwell, Archer & Lovell, David G. Archer, Cartersville, Kevin A. Ross, Los Angeles, CA, Brinson, Askew, Berry, Seigler & Richardson, Robert M. Brinson, Norman S. Fletcher, J. Anderson Davis, Samuel L. Lucas, Rome, Ansel F. Beacham III, Susan J. Moore, Ted C. Baggett, James F. Grubiak, Michele L. Nesmith, Holland & Knight, Charles S. Johnson III, Raymond P. Carpenter, Atlanta, amici curiae.

HUNSTEIN, Presiding Justice.

In 2006, Appellant City of Atlanta filed suit against Appellee Hotels.com, L.P., and several other online travel companies ("OTCs")¹ seeking recovery for the OTCs' alleged liability for unpaid hotel occupancy taxes. Following the trial court's dismissal of the City's action, the Court of Appeals affirmed based on lack of subject matter jurisdiction due to the City's failure to exhaust available administrative remedies. City of Atlanta v. Hotels.com, 288 Ga.App. 391, 654 S.E.2d 166 (2007). We granted certiorari to address whether the Court of Appeals erred in holding (1) that the relevant tax statutes and ordinance require exhaustion of administrative remedies as a mandatory prerequisite to initiation of judicial proceedings; and (2) that no exception to the exhaustion doctrine applies under the circumstances presented. For the reasons set forth below, we find that the decisions below must be vacated to allow for the adjudication of the City's claim for declaratory judgment as to the threshold issue regarding applicability of the tax statutes and ordinance.

As explained by the Court of Appeals:

So that counties and cities can raise revenue for tourism promotion and the provision of other local government services, the General Assembly enacted OCGA § 48-13-50 et seq. (the "Enabling Statutes"), authorizing local governments to levy and collect an excise tax pertaining to the furnishing of hotel rooms, lodgings, and accommodations. See OCGA §§ 48-13-50; 48-13-51(a)(1)(A). The hotel . . . occupancy tax is imposed upon "any person or legal entity licensed by or required to pay a business or occupation tax to the governing authority imposing the tax for operating a hotel [or similar facility]." OCGA § 48-13-51(a)(1)(B)(i). The tax also is imposed upon hotel guests, who must pay the tax "to the person or entity providing the room, lodging, or accommodation." OCGA § 48-13-51(a)(1)(B)(ii). The person or entity who collects the tax from the hotel guest then must "remit the tax to the governing authority imposing the tax." Id. The failure to collect or remit the tax is subject to civil and criminal penalties. OCGA §§ 48-13-58; 48-13-59.

Under the Enabling Statutes, counties and cities that choose to impose the hotel . . . occupancy tax are authorized to devise "the rate of taxation, the manner of imposition, payment, and collection of the tax, and all other procedures related to the tax," unless otherwise specifically provided for in the Enabling Statutes. OCGA § 48-13-53. Pursuant to this authorization, the City of Atlanta enacted its Hotel or Motel Occupancy Tax Ordinance, § 146-76 et seq., which imposes "a tax of seven percent of the rent for every occupancy of a guestroom in a hotel in the city." City of Atlanta Code of Ordinances (the "City Code") § 146-79.

City of Atlanta, supra, 288 Ga.App. at 391-392, 654 S.E.2d 166.

The City alleges that the OTCs, which operate as online retailers of hotel rooms and other travel-related products and services, are subject to Atlanta's hotel occupancy tax. Specifically, the City asserts that the OTCs contract with hotel companies to "purchase" blocks of rooms at a wholesale rate and subsequently "resell" them to consumers at a marked-up retail rate, keeping the difference as profit. The City further asserts that, after reselling the rooms, the OTCs forward to the hotel companies amounts intended to cover the hotel occupancy tax on the rooms sold, calculated on the wholesale price rather than the higher retail price; the hotels then remit to the City the taxes on their rooms sold. It is undisputed that the OTCs do not directly remit any hotel occupancy taxes to the City. Indeed, the crux of their position in this and the "plethora of [similar] lawsuits across the country," Orange County v. Expedia, Inc., 985 So.2d 622, 630 (Fla.Dist.Ct.App. 2008), is that, because they do not physically operate any hotels, they are not subject to the hotel occupancy tax.

Asserting that the OTCs are subject to the hotel occupancy tax under the Enabling Statutes and Atlanta's hotel tax ordinance, the City filed suit seeking a declaration that the OTCs are subject to the hotel tax ordinance, and thus must register and make filings in accordance therewith and collect and remit the required taxes on the retail price paid by consumers for hotel rooms sold; a permanent injunction requiring collection and remittance to the City of hotel occupancy taxes based on the retail price paid by consumers; and recovery of past unremitted taxes with interest and penalties as prescribed under the hotel tax ordinance. The City's complaint also asserts common law claims for conversion and unjust enrichment and seeks imposition of a constructive trust and the conducting of an equitable accounting as to unremitted hotel occupancy taxes.

It is undisputed that the City did not, prior to filing suit, attempt to calculate any estimated amount of taxes the OTCs had allegedly failed to remit or attempt to make an assessment on any of them. On this basis, the trial court dismissed the City's suit in its entirety, holding that it lacked subject matter jurisdiction over the case because the City had failed to exhaust the administrative remedies provided under the Enabling Statutes and hotel tax ordinance. The Court of Appeals affirmed, holding that the City was required to estimate, assess, and provide written notice of taxes due as a mandatory prerequisite to filing suit for recovery under the hotel tax ordinance; that the City was not excused from the exhaustion requirement under the theory that pursuit of administrative remedies would be futile or result in irreparable harm; and that the City's common law claims, as mere indirect conduits for tax collection, were likewise not viable.

As noted above, whether the hotel tax ordinance actually applies to the OTCs is a strenuously contested issue in this case and one which neither the trial court nor the Court of Appeals has yet resolved. In our view, the City cannot be required to exhaust an administrative process as a prerequisite to obtaining a determination that the ordinance prescribing that process even applies in the first place. Accordingly, we hold that, until the threshold legal issue of applicability of the hotel tax ordinance has been resolved, the City should not be required to submit to the administrative process set forth therein. Accord Orange County, supra, 985 So.2d at 629 (reversing dismissal of county's hotel tax suit against OTCs and remanding for resolution of "threshold legal question" of applicability of tax ordinance). See generally USA Payday Cash Advance Centers v. Oxendine, 262 Ga.App. 632, 634, 585 S.E.2d 924 (2003) (resolving threshold issue of application of Industrial Loan Act to parties prior to dismissing action for failure to exhaust administrative remedies under the Act). This Court has recognized that the exhaustion doctrine "does not apply where the defect urged by the complaining party goes to the jurisdiction or power of the [involved] agency. . . . [Cits.]" Cravey v. Southeastern Underwriters Assn., 214 Ga. 450, 457(3), 105 S.E.2d 497 (1958). See generally City of Waycross v. Reid Rental Co., 186 Ga.App. 452, 454, 367 S.E.2d 305 (1988) (adopting rationale in Cravey, supra, in sustaining claim for declaratory judgment). The Court of Appeals has likewise recognized that a failure to exhaust administrative remedies does not preclude a declaratory ruling to determine a party's authority to act. See DBL, Inc. v. Carson, 284 Ga.App. 898(2), 645 S.E.2d 56 (2007) (declaratory judgment properly granted despite failure to exhaust administrative remedies where claimant challenged commission's authority to issue water bottom lease); AT&T Wireless PCS v. Leafmore Forest Condominium Assn., 235 Ga.App. 319(2), 509 S.E.2d 374 (1998) (declaratory judgment properly granted despite failure to exhaust administrative remedies where claimant challenged department's authority to issue building permit).

In this case, the threshold issue of whether the tax ordinance applies is absolutely determinative of the City's jurisdiction over the OTCs for tax purposes.

[T]he central issue at this stage of this litigation is whether [the OTCs] are subject to the Ordinances at all. Such a determination is fundamentally legal, not administrative, in nature, and the Ordinances do not give the [City's Chief Financial Officer (CFO) ] the authority to determine the scope of the law. Furthermore, the court finds it difficult to believe...