Expedia, Inc. v. City & Cnty. of Denver
| Citation | 405 P.3d 251 |
| Decision Date | 03 July 2014 |
| Docket Number | Court of Appeals No. 13CA0779 |
| Parties | EXPEDIA, INC.; Hotels.com, L.P.; Hotwire, Inc.; Orbitz, LLC; Trip Network, Inc., d/b/a Cheaptickets.com; Priceline.com, Inc.; Travelwebb LLC ; Travelocity.com L.P.; and Site59.com, LLC, Plaintiffs-Appellants and Cross-Appellees, v. CITY AND COUNTY OF DENVER, Colorado ; Cary Kennedy, in her official capacity as the Manager of Finance of the City and County of Denver; and Bill Speckman, in his official capacity as Hearing Officer designated by the Manager of Finance, Defendants-Appellees and Cross-Appellants. |
| Court | Court of Appeals of Colorado |
Reilly Pozner, LLP, Dan M. Reilly, Sean Connelly, Jason M. Lynch, Denver, Colorado; Jones Day, Deborah Sloan, Dallas, Texas, for Plaintiffs-Appellants and Cross-Appellees
Lewis Roca Rothgerber, LLP, Michael D. Plachy, Thomas M. Rogers III, Denver, Colorado; Hagens Berman Sobol Shapiro, LLP, Andrew M. Volk, Christopher A. O'Hara, Seattle, Washington, for Defendants-Appellees and Cross-Appellants
Opinion by JUDGE NAVARRO
¶ 1 Online travel companies (OTCs) maintain websites through which travelers may book reservations for hotel accommodations and other travel-related services. When booking a hotel room through an OTC, a traveler pays a total price that includes the rate charged by the hotel to the OTC. The total price also includes the OTC's markup and service fees (collectively, fees). It is undisputed that the Lodger's Tax imposed by the City and County of Denver applies to the room rate charged by the hotel. The question presented here is whether that tax also applies to an OTC's fees.
¶ 2 We conclude that the Lodger's Tax ordinance does not unambiguously include the OTC's fees within its designated tax base. Strictly construing this taxing provision against the government, we therefore hold that the tax does not apply to such fees. We reverse the district court's judgment to the extent that it upheld the administrative hearing officer's order assessing the Lodger's Tax against the plaintiff OTCs.1 We remand with directions to vacate all of the tax assessments against the OTCs.
¶ 3 This case represents one of many efforts nationwide to determine whether OTCs must collect and remit municipal taxes that apply to hotel accommodations. See James A. Amdur, Annotation, Obligation of Online Travel Companies to Collect and Remit Hotel Occupancy Taxes, 61 A.L.R.6th 387 (2011). "Although the claims are similar, the outcome of each case depends on the evidence introduced and the language of the taxing provision at issue." City of Houston v. Hotels.com, L.P., 357 S.W.3d 706, 707 (Tex.App.2011).
¶ 4 The City and County of Denver (the City) imposes a Lodger's Tax of 10.75% on the purchase price for "lodging." Denver Rev. Mun.Code § 53–171(b). Lodging includes overnight accommodations, furnished for consideration, in a hotel or similar establishment. Id. at § 53–170(2). The tax must be collected from travelers and remitted to the City by "vendors." Id. at § 53–167(b). The City contends that the OTCs are vendors that must collect and remit the Lodger's Tax on the fees they charge their customers, in addition to the tax on the room rate charged by the hotel.2
¶ 5 The OTCs provide websites and related services that enable their customers to make travel arrangements, including hotel reservations, online. The OTCs' websites allow travelers to research and compare available accommodations by price, location, available amenities, and nearby attractions. The websites also permit customers to book flights and reserve rental cars, and to do so in combination with hotel reservations in customized package deals.
¶ 6 As relevant here, the OTCs use a "merchant model" for facilitating reservations at hotels. While the parties often use different terminology to describe the model, its basic factual premises are not in dispute. We describe it below. See also City of Houston, 357 S.W.3d at 708–10 ().
¶ 7 The OTCs have entered into contracts with Denver hotels. Under such a contract, the hotel offers rooms to the OTC at a discounted rate that is a fixed percentage of the price the hotel would charge travelers directly for the rooms (which price is subject to change by the hotel). The OTCs facilitate the booking of reservations for the hotel on behalf of OTC customers. The contracts define the discounted rates under which the OTCs may book reservations for a particular hotel and the terms under which the hotel will make rooms available to the travelers who use the OTCs' websites to make reservations. The contracts specify that they are not rental or sales agreements for certain hotel rooms or blocks of rooms, but rather are agreements that the OTCs will facilitate the booking of hotel room reservations. Generally, the hotel is not obligated 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 at a given hotel.
¶ 8 The OTCs advertise the rooms on their websites for reservation by customers. When a customer requests a hotel reservation via an OTC's website, the customer is quoted a room price that combines the discounted room rate charged by the hotel with the OTC's fees (or markup) for that room. The OTC charges an additional lump sum typically designated as "taxes and fees." But the OTC calculates the Lodger's Tax due based solely on the discounted room rate charged by the hotel, excluding the additional fees collected from the traveler and retained by the OTC as compensation for its services. The OTC does not disclose to its customer the discounted rate the OTC pays the hotel, the amount representing the OTC's fees, or the portion of the final price attributable to the Lodger's Tax.
¶ 9 Before finalizing its transaction with the customer, the OTC obtains confirmation from the hotel that a room is available. If so, the hotel accepts a reservation in the customer's name and supplies the OTC with a confirmation number. The OTC then charges the customer's credit card and passes on the hotel's confirmation number to the customer.
¶ 10 When the customer arrives at the hotel, he or she must check in with the hotel's personnel and provide the hotel with security for any incidental charges incurred during the stay. The hotel is responsible for providing an appropriate room, as well as for maintaining the hotel and any amenities it provides. Even if a room is guaranteed, the hotel is not required to provide the customer with one of its rooms. But, if the hotel does not do so, it must secure comparable accommodations for the customer at no additional cost.
¶ 11 Later, the hotel invoices the OTC for the contractual room rate and the Lodger's Tax on that discounted rate, generally after the customer has checked out. The hotel assumes responsibility for remitting the collected Lodger's Tax to the City.
¶ 12 The hearing officer in this case illustrated these points, and the parties' dispute, in the following example. An OTC charges its customer a room rate of $200, even though the hotel will invoice the OTC for a discounted room rate of only $160. The $40 difference represents the OTC's fees, including markup. The OTC also collects Lodger's Tax of $17.20 (10.75% of $160) from its customer and pays that to the hotel for remittance to the City. The City contends that the OTC must collect and remit Lodger's Tax of $21.50 (10.75% of $200). Hence, under the City's view, the Lodger's Tax applies to the OTC's fees paid by its customer.
¶ 13 The phrase "merchant model" refers to the facts that the OTC, not the hotel, sets the price paid by its customer (within contractual limits) and is the merchant of record for the customer's credit card transaction. To recap, the customer's credit card payment includes three consolidated components: (1) the discounted room rate set by the hotel for reservations made through the OTC; (2) the Lodger's Tax amount, calculated as a percentage of the discounted room rate only; and (3) the fees retained by the OTC.
¶ 14 For decades, the City collected the Lodger's Tax only from hotels and other businesses that physically operate lodging establishments in Denver. Before the assessments at issue here, the City had never sought to collect the Lodger's Tax from travel agents, wholesalers, tour operators, or other entities that facilitate reservations at Denver hotels.
¶ 15 The City began investigating the OTCs' obligations under the Lodger's Tax ordinance as early as 2003, when it requested information from some of the OTCs about their relationships with hotels and their use of the merchant model. In 2006, another OTC attempted to determine the City's position on whether OTCs using the merchant model were subject to the Lodger's Tax. The City began an audit but then stopped without completing the audit or issuing an assessment.
¶ 16 The City took no further action against the OTCs for years. Then, in 2010—without any additional audits or communications with the OTCs—the City issued the assessments at issue here.
¶ 17 The City's manager of finance issued Lodger's Tax assessments to the OTCs covering the period from 2001 through April 2010. See Denver Rev. Mun.Code § 53–187 (). The assessments—which totaled $40 million—included Lodger's Taxes on the amounts the City estimated that the OTCs had retained as fees, as well as penalties and interest.
¶ 18 Each OTC protested its assessment and requested a hearing. See id. at § 53–188. A hearing officer appointed by the manager of finance held a joint hearing. The parties stipulated that, if the OTCs were liable for the Lodger's Tax on their fees since 2001, they owed $4,652,522 in back taxes, not including penalties and interest.
¶ 19 In his final decision, the hearing officer found that...
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