Orbitz, LLC v. Hoyle
| Decision Date | 28 May 2013 |
| Docket Number | 11 CVS 1857 |
| Parties | ORBITZ, LLC; TRIP NETWORK, INC. (d/b/a CHEAPTICKETS.COM); TRAVELOCITY.COM L.P.; TRAVELSCAPE, LLC; HOTELS.COM, L.P. and HOTWIRE, INC., Plaintiffs, v. DAVID HOYLE, SECRETARY OF REVENUE OF THE STATE OF NORTH CAROLINA; THE NORTH CAROLINA DEPARTMENT OF REVENUE and DURHAM COUNTY, Defendants. |
| Court | Superior Court of North Carolina |
Williams, Mullen, Maupin, Taylor, P.A. by Charles Neely, Jr., Nancy S. Rendleman, and Robert W. Shaw for Plaintiffs.
McDermott Will & Emery, LLP by Elizabeth B. Herrington, Jane Wells May, and Michael W. Weaver for Plaintiffs Orbitz, LLC and Trip Network, Inc. (d/b/a Cheaptickets.com).
Alston & Bird, LLP by Jon G. Shepherd for Plaintiff Travelocity.com, L.P.
Sutherland Asbill & Brennan, LLP by Jeffrey A. Friedman and A. Pilar Mata for Plaintiffs Travelscape, LLC, Hotels.com, L.P., and Hotwire, Inc.
Attorney General Roy Cooper by Special Deputy Attorney General Kay Linn Miller Hobart for Defendants Secretary David Hoyle and the North Carolina Department of Revenue.
Durham County Attorney's Office by Assistant Durham County Attorney Marie Inserra for Defendant Durham County.
{1} THIS MATTER is before the Court on Defendants David Hoyle ("Hoyle") and the North Carolina Department of Revenue's ("Department of Revenue") (collectively the "State") Motion to Dismiss pursuant to Rules 12(b)(2) and 12(b)(6) of the North Carolina Rules of Civil Procedure, and Defendant Durham County's ("Durham") Motion to Dismiss pursuant to Rules 12(b)(1), 12(b)(2), 12(b)(3), and 12(b)(6); N.C. Gen. Stat. § 1-75.3 (2011); and N.C. Gen. Stat. § 1-77 (2011).[1] After considering the motions, the parties' briefs in support and opposition, and the arguments made by counsel during a hearing on Defendants' motions on November 18, 2011, the Court: DENIES Defendant Durham's Motion to Dismiss pursuant to Rule 12(b)(1); DENIES Defendant Durham's Motion to Dismiss pursuant to N.C. Gen. Stat. § 1-75.3; GRANTS in part, and DENIES in part Defendants' Motions to Dismiss pursuant to Rules 12(b)(2), and 12(b)(6); and DENIES Defendant Durham's Motion to Dismiss pursuant to Rule 12(b)(3) and N.C. Gen. Stat. § 1-77.
{2} Plaintiffs filed their Complaint on February 4, 2011, requesting a declaratory judgment that the amendments to N.C. Gen. Stat. §§ 105-164.4, 105-164.4B, 153A-155, and 160A-215 (the "Amendments") included in the Current Operations and Capital Improvements Appropriations Act of 2010 are: (1) in violation of the: Internet Tax Freedom Act, the Contracts Clause of the United States Constitution, the Commerce Clause of the United States Constitution, the Equal Protection Clause of the United States Constitution, the Equal Protection Clause of the North Carolina Constitution, and the Uniformity Clause of the North Carolina Constitution, and (2) void for vagueness. (Compl. ¶¶ 94–203.)
{3} Durham and the State filed their motions to dismiss on April 15, 2011, and April 18, 2011, respectively, and a hearing on the motions was held on November 18, 2011.
{4} The Court does not make findings of fact in connection with motions to dismiss pursuant to Rule 12(b)(6), as such motions "do[] not present the merits, but only whether the merits may be reached." Concrete Serv. Corp. v. Investors Group, Inc., 79 N.C.App. 678, 681, 340 S.E.2d 755, 758 (1986). Accordingly, for the purposes of analyzing Defendants' Rule 12(b)(6) motions, the Court recites only those facts alleged in the Complaint that are relevant to the Court's legal determinations.
{5} Plaintiffs are foreign corporations commonly known as online travel companies. (Compl. ¶¶ 10–15, 46.) As online travel companies, Plaintiffs serve as third-party intermediaries between travel suppliers (hotel operators, airlines, rental car companies, etc.) and consumers looking to purchase travel-related goods and services. (Compl. ¶¶ 42–43.) Like travel agents, Plaintiffs collect travel-related information, provide vacation planning tools, and allow consumers to make hotel, air, and auto reservations through the companies' websites ("Travel Facilitation Services"). (Compl. ¶ 47.)
{6} Plaintiffs generally book hotel reservations for consumers on a prepaid basis that requires payment for the hotel stay when a reservation is made. (Compl. ¶ 50.) Plaintiffs refer to this as the Prepaid Model. (Compl. ¶ 50.)
{7} Plaintiffs allege that under the Prepaid Model, a consumer enters into two simultaneous transactions. The first, between the consumer and the hotel operator (Holiday Inn®, Hilton®, Hampton Inn®, etc.), is for the rental of an accommodation (the "Room Rental Charge"). (Compl. ¶ 52.) The second, between the consumer and a Plaintiff, compensates a Plaintiff for its Travel Facilitation Services (the "Facilitation Fee"). (Compl. ¶ 53.)
{8} Under the Prepaid Model, Plaintiffs forward the Room Rental Charge and a tax recovery charge to the hotel operator. (Compl. ¶¶ 58–59.) The tax recovery charge is intended to cover all anticipated state and local taxes charged by the hotel operator to the consumer. (Compl. ¶¶ 58–59.)
{9} North Carolina imposes a Sales Tax as part of a combined sales and use tax. (Compl. ¶ 63.) It applies to the rental of hotel rooms and is a tax on retailers for the privilege of engaging in the business of retailing. (Compl. ¶¶ 65, 72.) While the Sales Tax is imposed on the retailer, the law allows it to be passed on to the consumer. (Compl. ¶ 70.)
{10} In addition to the Sales Tax, Durham imposes a tax on the rental of hotel rooms within the County (the "Room Occupancy Tax"). The Room Occupancy Tax is only imposed on room rentals subject to the Sales Tax. (Compl. ¶ 75.)
{11} Before the Amendments were adopted, the Sales Tax and Room Occupancy Tax were assessed on retailers' gross receipts. (Compl. ¶ 76.) These receipts did not include Facilitation Fees charged by Plaintiffs. (Compl. ¶ 77.) However, with the passage of the Amendments, gross receipts were redefined to include "charges designated as facilitation fees and any other charges necessary to complete the rental." N.C. Gen. Stat. § 105-164.4(a)(3) (2011). Plaintiffs argue that these changes unfairly tax Facilitation Fees collected in transactions solely between consumers and Plaintiffs. (Compl. ¶ 84.)
{12} The Amendments also created a new category of participant in the Sales Tax collection process. These participants, called facilitators, are defined as "[a] person who is not a rental agent and who contracts with a provider of an accommodation to market the accommodation and to accept payment from the consumer for the accommodation." Id. at § 105-164.4(a)(3)(b). Plaintiffs acknowledge that they qualify as facilitators under the Amendments. (Compl. ¶ 80.) Facilitators must report to the retailer the sales price a consumer pays for the room rental, send the retailer the tax due on the sales price within three days of notification from the retailer that a room rental transaction is completed, and are liable for all taxes due on the sales price that are not sent to the retailer. Id. at § 105-164.4(a)(3).
{13} Under the provisions of the Sales Tax, the obligations imposed by the Amendments on retailers and facilitators are to be "considered terms of the contract between the retailer and the facilitator." Id.
{14} As part of the statutory scheme imposing the Sales Tax, the State provides taxpayers with the ability to challenge the amount of tax they are assessed. N.C. Gen. Stat. § 105-241.17 (2011). Plaintiffs did not comply with the conditions for filing an action to challenge the constitutionality of a tax statute provided under Section 105-241.17.
{15} Standing is a question of subject matter jurisdiction, and a prerequisite to the exercise of authority by our courts. Street v. Smart Corp., 157 N.C.App. 303, 305, 578 S.E.2d 695, 698 (2003); Neuse River Foundation, Inc. v. Smithfield Foods, Inc., 155 N.C.App. 110, 113, 574 S.E.2d 48, 51 (2002). "'If a party does not have standing to bring a claim, a court has no subject matter jurisdiction to hear the claim.'" Prop. Rights Advocacy Grp. v. Town of Long Beach, 173 N.C.App. 180, 182, 617 S.E.2d 715, 717 (2005) (quoting Estate of Apple v. Commercial Courier Express, Inc., 607 S.E.2d 14, 16 (2005)), aff'd 360 N.C. 474, 628 S.E.2d 768 (2006).
{16} "'Standing refers to whether a party has a sufficient stake in an otherwise justiciable controversy such that he or she may properly seek adjudication of the matter.'" Id. (quoting Street, 157 N.C.App. at 305, 578 S.E.2d at 698).
{17} The North Carolina Court of Appeals has held that "a motion to dismiss based on sovereign immunity presents a question of personal jurisdiction rather than subject matter jurisdiction . . . ." Data Gen. Corp. v. Cnty. of Durham, 143 N.C.App. 97, 100, 545 S.E.2d 243, 246 (2001); see also Green v. Kearney, 203 N.C.App. 260, 690 S.E.2d 755 (2010). However, the Court of Appeals has also held that "a Rule 12(b)(6) motion to dismiss based on sovereign immunity affects a substantial right and is therefore immediately appealable." Meherrin Indian Tribe v. Lewis, 197 N.C.App. 380, 385, 677 S.E.2d 203, 207 (2009).
{18} " Sanders v. State Pers. Comm'n, 183 N.C.App. 15, 19, 644 S.E.2d 10, 13 (2007) (quoting Fabrikant v. Currituck Cnty., 174 N.C.App. 30, 38, 621 S.E.2d 19, 25 (2005) (alteration in original). "'[P]recise language alleging that the State has waived the defense of sovereign immunity is not necessary, ' but, rather,...
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