City of Houston v. Hotels.com, L.P.
| Citation | 357 S.W.3d 706 |
| Decision Date | 07 December 2011 |
| Docket Number | No. 14–10–00349–CV.,14–10–00349–CV. |
| Parties | CITY OF HOUSTON, Texas and Harris County–Houston Sports Authority, Appellants, v. HOTELS.COM, L.P., Hotwire, Inc., Expedia, Inc., Travelnow.Com, Inc., Trip Network Inc. d/b/a Cheaptickets.Com, Orbitz, LLC, Internetwork Publishing Corp. d/b/a Lodging.Com, Priceline.Com Inc., Lowestfare.Com Inc., Travelweb LLC, and Travelocity.Com LP, Appellees. |
| Court | Court of Appeals of Texas |
OPINION TEXT STARTS HERE
Jacks C. Nickens, Houston, for Appellants.
David E. Keltner, Fort Worth, for Appellees.
Panel consists of Chief Justice HEDGES and Justices FROST and CHRISTOPHER.
This is one of many similar suits across the country in which local taxing authorities have sued online travel companies to recover allegedly unpaid hotel occupancy taxes. Although the claims are similar, the outcome of each case depends on the evidence introduced and the language of the taxing provision at issue. Both the City of Houston and the Harris County–Houston Sports Authority tax “the cost of occupancy,” which they contend is the amount paid by the consumer to the online travel company. The defendant companies maintain that these provisions tax the amount paid to the hotel. The trial court agreed with the online travel companies and granted summary judgment in the defendants' favor. The taxing entities appealed the judgment. This court must resolve any ambiguity in a tax statute in favor of the taxpayer. We conclude that, at a minimum, the provisions at issue reasonably can be construed to tax only the amounts paid to hotels. We therefore affirm the judgment.
The City of Houston passed an ordinance imposing a tax of 7% on the “cost of occupancy” in a hotel; the Sports Authority passed a resolution applying an additional 2% tax on the “cost of occupancy.” For many years, hotels remitted local hotel occupancy taxes, and the City and the Sports Authority (which we refer to collectively as “Houston”) sought no additional funds from online travel companies (“OTCs”). In 2007, however, Houston sued the defendants to recover allegedly unpaid hotel occupancy taxes. The disposition of the case turns on the identification of the “cost of occupancy” for the purposes of the ordinance and the resolution.
To place these claims in context, it first must be understood that a hotel may offer the same room to the public at a variety of different rates. A consumer traveling to another area could research all of the hotels in that area to identify the different rates, amenities, and locations available, and after evaluating this information, reserve a room directly through the chosen hotel. Alternatively, a consumer could make a reservation through an intermediary such as a travel agency or an online travel company that already has the information available. This suit concerns transactions in which consumers made hotel reservations through an online travel company that structures such transactions under the “merchant model.” We therefore begin by explaining how that model operates, as shown from the summary-judgment evidence viewed under the applicable standard of review.1 For clarity, we discuss the facts as though all of the defendants were OTCs using the merchant model exclusively, and that the ordinance and the resolution impose the only taxes that arguably might apply.2
Under the merchant model, a hotel and an OTC enter a contract in which they agree that the OTC will include information about the hotel on the OTC's website and allow consumers to reserve rooms through the site. The OTC does not purchase the right to use the room and then resell that right to a consumer, and does not promise that any reservations will be made. The hotel provides information about its facilities to the OTC and agrees that it will invoice the OTC for the room and for local hotel occupancy taxes. In the invoice, the hotel bills the OTC for the room at a discounted rate, and for local hotel occupancy taxes applicable to that amount. The contract between the hotel and the OTC is flexible in that the hotel has discretion to change the discounted rate it charges the OTC and the number of reservations it will allow the OTC to book. These figures can change hourly. The OTC adds a “markup” to the discounted rate to arrive at the online rate displayed to visitors to the OTC's website. In at least some instances, an OTC agrees with the hotel that the total amount it collects from a consumer will not be less than the amount that the hotel would have collected from the consumer if the consumer had booked the room through the hotel's website.
A typical online transaction under the merchant model proceeds as follows:
A consumer wishing to reserve a hotel room visits the OTC's website and responds to prompts for information such as identification of the city in which a room is wanted and the dates to be reserved. The consumer also may specify acceptable ranges for the room rate, the hotel's rating, and the distance between the hotel and some other location. The OTC applies an algorithm to the information to produce search results that are displayed to the consumer. In these results, the OTC lists area hotels with available rooms in the desired price range and information allowing the consumer to compare photographs, available amenities, distance from other locations, and ratings. If the consumer decides to make a reservation through the OTC, he clicks the appropriate button or link and is asked to provide a credit card to be charged. After the consumer enters this information, he is asked to review and confirm the reservation.
The next step is not visible to the consumer. Because the hotel is not obliged to accept any particular number of reservations from the OTC, and the OTC has neither the right nor the obligation to make a particular number of reservations with a given hotel, the OTC at some point must determine that the requested reservation will actually be accepted. Thus, while the consumer is reviewing the reservation, the OTC confirms availability with the hotel. In some instances, the OTC transmits the reservation information to an “extranet” accessible to both the OTC and the hotel; in other instances, the hotel can communicate directly with the OTC's computer system on a real-time basis to change the number of reservations available and the discounted rate it will charge the OTC. If the room is available, a confirmation number is sent to the OTC. When the consumer clicks a button or link on the website confirming the reservation, the OTC provides the confirmation number to the consumer and charges his credit card.
The amount the OTC charges the consumer consists of a marked-up rate and another charge that is commonly shown on the consumer's receipt as “taxes and fees.” Internally, OTCs often refer to a “tax recovery charge” rather than to “taxes,” but the two amounts are intended to be identical. On some OTC websites, an icon is displayed offering more information about “taxes and fees,” which is linked to an explanation that the word “taxes” refers to a “tax recovery charge.” No payment for the reservation is transmitted to the hotel until the hotel sends an invoice to the OTC, which may occur when the room occupant checks in or checks out of the hotel. The hotel then invoices the OTC for the discounted rate for the room, and for an amount equal to the applicable local hotel occupancy taxes on the discounted rate. The City's hotel occupancy tax rate is 7%, and the Sports Authority's tax rate is 2%. So, for example, the websites of both the OTC and a local hotel might display a room rate of $200.00, even though the hotel might invoice the OTC for a discounted rate of only $175.00. If the consumer booked the room through the hotel's website, the hotel would charge the consumer $218.00, which represents the room rate of $200.00 and $18.00 for the taxes on that amount. If the consumer made the same reservation through the OTC's website, the OTC also would collect $218.00. Of that sum, $200.00 would be represented to the consumer as the room rate, and $18.00 would be described as “taxes and fees.” The hotel subsequently would invoice the OTC for $190.75, which is the discounted rate of $175.00, to which is added $15.75 as the tax on that amount. The OTC would pay the invoiced sum,3 and the hotel would remit the taxes. Thus, in this example, the consumer's choice between reserving a room through the hotel's website and through the OTC's website would result in a difference of $2.25 in the amount of hotel occupancy taxes that would be remitted to Houston.
Houston sued the OTCs to collect taxes allegedly due on the difference between the amount consumers paid to OTCs and the amount OTCs paid to hotels. In addition, it alleged that the OTCs conspired to evade hotel occupancy taxes and converted taxes that they actually collected. Houston sought an accounting, the imposition of a constructive trust, damages, penalties, attorneys' fees, costs, and interest.
The OTCs moved for traditional summary judgment on the grounds that (a) both the ordinance and the resolution tax only those amounts paid to hotels, and Houston either admitted that such amounts had been paid or had no evidence that taxes on those amounts had not been remitted; (b) OTCs provide nontaxable personal services; and (c) there is no evidence that they use or possess the hotel rooms.
As to Houston's conversion claim, the OTCs moved for traditional summary judgment on the ground that, as a matter of law, the money allegedly due to Houston cannot be the subject of such a claim. They also asserted there is no evidence that (a) Houston is entitled to possess the disputed funds, (b) the OTCs exercised unlawful and unauthorized control over such funds, and (c) Houston demanded the money. The OTCs further sought traditional...
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