Expedia, Inc. v. City of Columbus

• Decision Date: 15 June 2009
• Docket Number: No. S09A0567.,S09A0567.
• Citation: 681 S.E.2d 122,285 Ga. 684
• Parties: EXPEDIA, INC. v. CITY OF COLUMBUS.
• Court: Georgia Supreme Court

681 S.E.2d 122

285 Ga. 684

EXPEDIA, INC. v. CITY OF COLUMBUS.

No. S09A0567.

Supreme Court of Georgia.

June 15, 2009.

Reconsideration Denied June 30, 2009.

Buchanan & Land, Jerry A. Buchanan, Benjamin A. Land, Columbus, Jones Day, Edward K. Smith, Atlanta, Robin A. Schmahl, for appellant.

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

BENHAM, Justice.

Expedia, Inc. is an online travel company (OTC) which books hotel rooms and makes other travel arrangements for customers who access its services over the internet. Expedia's main business model, known as the "merchant model," is to contract with hotels for the right to broker or facilitate the reservation of hotel rooms at a discount or "wholesale rate." Expedia then advertises and offers the rooms for sale to the public on its website. When a customer purchases a hotel room reservation from Expedia, Expedia charges the customer an amount that is greater than the wholesale rate. This "marked-up" amount is the "room rate." Although Expedia states that the room rate is a combination of the wholesale rate and its facilitation fee, it does not disclose to the public which portion of the "room rate" is for its facilitation fee. Expedia also does not disclose to the hotel the amount of the room rate charged to Expedia's customers.¹

Expedia provides in its contracts with hotels that it "shall collect all applicable taxes from its customers." Thus, at the time a reservation is made, Expedia notifies the customer that it is collecting a certain amount of money for "taxes and service fees." Expedia does not disclose to the customer which portion of the "taxes and service fees" is for "taxes" or which portion is for "service fees." At the end of the transaction, the customer pays Expedia directly in a total amount that equals the "room rate" plus "taxes and service fees."

Upon checking into the hotel, the customer does not pay the hotel any money for the room or any fees or taxes, but only provides a credit card for incidentals. After the customer has completed his hotel stay, the hotel is required to send Expedia an invoice for the wholesale rate and the occupancy taxes based on the wholesale rate. Upon receipt of the invoice, Expedia remits the payment to the hotel which pays the taxes to the municipal tax authority. Under Expedia's merchant model method of conducting business, the hotel occupancy tax amount is calculated based on the wholesale rate Expedia negotiates with hotels. Expedia retains whatever it has collected over the amount of the remittance to the hotel. If the hotel fails to submit an invoice to Expedia in the time period designated by contract, then Expedia retains all monies collected from the customer, including any money purportedly collected for taxes.

In Georgia, municipalities may levy taxes related to hotel stays and use the funds to promote tourism pursuant to OCGA § 48-13-50 et seq. (the "Enabling Statute"). Specifically, the Enabling Statute provides for municipalities to impose an excise tax "at the applicable rate on the lodging charges actually collected." OCGA § 48-13-51(a)(1)(B)(i). Per the Enabling Statute, the City of Columbus has promulgated the "Hotel-Motel Occupancy Excise Tax" Ordinance. Columbus Code § 19-110 et seq. At § 19-111 of the ordinance, the City imposes

an excise tax in the amount of seven percent of the charge to the public upon the furnishing for value of any room or rooms or lodging or accommodations furnished by any person licensed by or required to pay business or occupation taxes to Columbus for operating a hotel within the meaning of this article.

Per the Enabling Statute, these taxes are imposed upon and collected from the hotel guest. OCGA § 48-13-51(a)(1)(B)(ii) ("Any tax levied ... in this Code section is also imposed upon every ... entity who is a hotel or motel guest and who receives a room...."). "The person or entity collecting the tax from the hotel or motel guest shall remit the tax to the governing authority imposing the tax ...." OCGA §48-13-51(a)(1)(B)(ii). The taxes must be remitted to the City by the twentieth day of the month following the month in which the occupancy occurred. OCGA § 48-13-53.2(a); Columbus Code § 19-115.

On May 30, 2006, the City filed a complaint seeking declaratory judgment, injunctive relief, and "other equitable remedies" against Expedia. On October 5, 2007, the City moved for declaratory and injunctive relief, alleging that under Expedia's merchant model, hotel occupancy or excise taxes were to be based on the room rate or "charge to the public," rather than the negotiated wholesale rate. On September 22, 2008, the trial court, upon holding a hearing and considering evidence, found that: (1) as a matter of fact, Expedia contracts with hotels to collect the customer's hotel tax payment on behalf of the hotel; (2) Expedia is not prohibited by the Enabling Statute or the City's ordinance from contracting to collect, on the hotel's behalf, the customer's hotel tax payment; (3) as a matter of law, "charge to the public" (Columbus Code § 19-111) and "lodging charges actually collected," (OCGA § 48-13-51(a)(1)(B)(i)) include the room rate that Expedia charges to its customers and not the negotiated wholesale rate; (4) any service or facilitation fees that are "separately disclosed" to Expedia's customers are not taxable; (5) Expedia's state and federal constitutional defenses (equal protection, Commerce Clause, and uniformity clause) are not viable; (6) the City has no adequate remedy at law; and (7) the City would suffer irreparable harm in terms of lost opportunities for soliciting and promoting tourism if injunctive relief were not granted. The trial court declined to rule whether Expedia was "an innkeeper or operator, or whether Expedia sells hotel rooms ..." for purposes of the Enabling Statute and the City's ordinance. In keeping with its factual and legal conclusions, the trial court then issued the following permanent injunction:

Henceforth, for hotel rooms booked for occupancy in Columbus, Georgia, using its merchant model, Defendant Expedia IS ENJOINED to collect the hotel occupancy tax based on the total amount it discloses to the consumer as the Room rate, room charge or other comparable term. The taxes so collected shall be remitted to Plaintiff Columbus either directly by Expedia or through the hotels as currently is done, on or before the twentieth day of the month following each monthly period. With respect to such bookings, Expedia shall separately disclose to the consumer both the Room rate and all hotel occupancy taxes such that the consumer will have the information contemplated by law that serves as a credit against the tax imposed. That information shall be made to the consumer either on-line at the time of the booking or at the hotel upon occupation of the room, or both. Further, Defendant Expedia shall maintain information as to the number of hotel rooms booked through Expedia and eventually occupied in Columbus, the charge to the public (the Room rate) for each such room, and the hotel occupancy taxes collected and remitted, and Expedia shall provide that information to Plaintiff Columbus either through the hotels as it currently does or by reporting such information directly to Columbus, in a timely fashion. This Court retains jurisdiction over this matter for purposes of enforcing, modifying or vacating INJUNCTION upon proper application.

Expedia seeks review because it contends the trial court lacked subject-matter jurisdiction due to the failure of the City to exhaust its administrative remedies; erred as a matter of law in its construction of the statute as to what and who was to be taxed; erred in failing to find the City's enforcement of its ordinance violated the Equal Protection and the Commerce Clauses of the United States Constitution, and the Uniformity Clause of the Georgia Constitution; and erred when it failed to determine that the City had an adequate remedy at law thereby making an injunction an improper form of relief.² For the reasons set forth below, we affirm with direction.

1. Expedia argues that the trial court lacked subject-matter jurisdiction because the City failed, prior to commencing suit, to pursue the administrative procedures set forth in § 19-117 of the City's ordinance, requiring a written notice to Expedia of the estimated tax believed to be due. In July 2007, the City complied with § 19-117 when, prior to any substantive ruling in the case, it sent Expedia a "Notice of Assessment and Collection to Expedia.com" indicating that Expedia owed the City approximately $26,000 in tax revenue. Expedia rejected the assessment and advised that it was not subject to the City's ordinance or the Enabling Statute.³ Since neither the City's ordinance nor the Enabling Statute provide any other process or procedure to review the written assessment, the City has completed its administrative process.

2. Expedia alleges the trial court erred when it found as a matter of law that Expedia is required to collect hotel occupancy taxes. Expedia misconstrues the trial court's ruling. The trial court concluded that, as a matter of fact, Expedia contracted with City hotels and bargained for the right to receive the customer's tax payment on the hotel's behalf whenever the customer reserved a hotel room on Expedia's website. Compare City of Rome v. Hotels.com, LP, 2006 U.S. Dist. LEXIS 56369 at *16(II)(B) (N.D.Ga. May 8, 2006) (district court determined defendant OTCs were "entities actually collecting ... taxes" from hotel guests that, pursuant to OCGA § 48-13-51(a)(1)(B), must be remitted to the taxing authority). The trial court then found that there was nothing in the Enabling Statute...