Pitt County v. Hotels.Com, L.P.

• Decision Date: 14 January 2009
• Docket Number: No. 07-1900.,07-1900.
• Parties: PITT COUNTY, Individually and on behalf of all others similarly situated, Plaintiff-Appellant, v. HOTELS.COM, L.P.; Hotels.com GP, LLC; Hotwire, Inc.; Cheap Tickets, Inc.; Cendant Travel Distribution Services Group, Inc.; Expedia, Incorporated; Internetwork Publishing Corporation, d/b/a Lodging.com; Lowest Fare.com, Inc.; Orbitz, Inc.; Orbitz, LLC; Priceline.com, Inc.; Travelocity.com, LP; Travelweb, LLC; Travelnow.com, Inc.; Does, 1-1000, Inclusive, Defendants-Appellees, and Site59.com; Travelocity.com, Inc.; Maupintour Holding, LLC, Defendants.
• Court: U.S. Court of Appeals — Fourth Circuit

553 F.3d 308

PITT COUNTY, Individually and on behalf of all others similarly situated, Plaintiff-Appellant, v. HOTELS.COM, L.P.; Hotels.com GP, LLC; Hotwire, Inc.; Cheap Tickets, Inc.; Cendant Travel Distribution Services Group, Inc.; Expedia, Incorporated; Internetwork Publishing Corporation, d/b/a Lodging.com; Lowest Fare.com, Inc.; Orbitz, Inc.; Orbitz, LLC; Priceline.com, Inc.; Travelocity.com, LP; Travelweb, LLC; Travelnow.com, Inc.; Does, 1-1000, Inclusive, Defendants-Appellees, and Site59.com; Travelocity.com, Inc.; Maupintour Holding, LLC, Defendants.

No. 07-1900.

United States Court of Appeals, Fourth Circuit.

Argued: October 30, 2008.

Decided: January 14, 2009.

ARGUED: John Timothy Murray, Sr., Murray & Murray, Sandusky, Ohio, for Appellant. Darrel J. Hieber, Skadden, Arps, Slate, Meagher & Flom, L.L.P., Los Angeles, California, for Appellees. ON BRIEF: Rebecca Cameron Blount, Blount & Blount, P.C., Greenville, North Carolina, for Appellant. Charles B. Neely, Jr., Nancy S. Rendleman, Robert W. Shaw, Williams Mullen Maupin Taylor, Raleigh, North Carolina, for Appellees; Karen L. Valihura, Michael A. Barlow, Skadden, Arps, Slate, Meagher & Flom, L.L.P., Wilmington, Delaware, for Appellees Priceline.com, Inc., Lowestfare.com, Inc., and Travelweb, L.L.C.; James P. Karen, Deborah S. Sloan, JONES DAY, Dallas, Texas, for Appellees Hotels.com, L.P., Hotels.com GP, L.L.C., Hotwire, Inc., Expedia, Incorporated, and TravelNow.com., Inc.; Paul E. Chronis, Elizabeth B. Herrington, McDermott Will & Emery, L.L.P., Chicago, Illinois, for Appellees Orbitz, Inc., Orbitz, L.L.C., Internet-work Publishing Corporation, d/b/a Lodging.com, Cheap Tickets, Inc., and Cendant Travel Distribution Services Group, Inc.; Brian S. Stagner, Kelly Hart & Hallman, L.L.P., Fort Worth, Texas, for Appellee Travelocity.com, L.P.

Before MICHAEL and AGEE, Circuit Judges, and Martin K. REIDINGER, United States District Judge for the Western District of North Carolina, sitting by designation.

Affirmed by published opinion. Judge MICHAEL wrote the opinion, in which Judge AGEE and Judge REIDINGER joined.

OPINION

MICHAEL, Circuit Judge:

North Carolina's Pitt County (the County) appeals the dismissal of its putative class action brought against a number of online travel companies for failure to pay the County's hotel occupancy tax. The online companies purchase rooms from hotels in the County at wholesale rates, charge consumers marked-up rates, but remit no occupancy taxes to the County. The district court determined that the online companies were not subject to the County's occupancy tax and dismissed the action on the ground that the County lacked standing to sue.

North Carolina law permits Pitt County to collect, under its own ordinance, an occupancy tax from a business renting rooms in the county if the operator of the business comes within the definition of "retailer" under the state's sales tax statute, N.C. Gen.Stat. § 105-164.4(a)(3). "Operators of hotels, motels, tourist homes, tourist camps, and similar type businesses ... are considered retailers" under the statute. Id. We conclude that an online travel company does not meet this statutory definition of a "retailer" because it is not a business that is of a type similar to a hotel, motel, tourist home, or tourist camp. We therefore agree with the district court that the County is not entitled to collect the occupancy tax. Although we conclude that the County has standing to sue, we affirm the district court's judgment of dismissal on the alternative ground that the County's complaint fails to state a claim.

I.

In December 2005 Pitt County filed a complaint in North Carolina state court alleging that the defendant online travel companies had failed to remit taxes to the County as required by its occupancy tax ordinance. The action was removed to the Eastern District of North Carolina. The County's complaint, in illustrating its claim, offers the following hypothetical: Hotels.com purchases a hotel room in Pitt County for a wholesale rate of $70.00 per night and re-lets the same room to a consumer at a retail rate of $100.00 per night. In this situation the hotel remits an occupancy tax to the County of 3 percent of the $70.00 per night wholesale rate it receives for the room. According to the complaint, the higher retail rate of $100.00 per night is nowhere taken into account in the calculation and remittance of the occupancy tax. Thus, Pitt County claims that it receives only 3 percent of $70.00, or $2.10, rather than 3 percent of $100.00, or $3.00, a shortfall of 90¢ on the hypothetical room rental.

The defendant online travel companies filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. In their motion the online companies asserted that they do not owe room occupancy taxes because the scope of the County's occupancy tax is constrained by the North Carolina state sales tax, and the online companies are not subject to the state sales tax. The district court initially denied the online companies' motion to dismiss, reasoning in part that the relevant statutes were sufficiently broad to cover the transactions in question.

The online travel companies then filed a motion for reconsideration, again contending that they were not subject to the County's occupancy tax ordinance. At the hearing on the motion to reconsider, the district court, for the first time, expressed a concern about whether the County had standing to sue. The court observed that if, as an initial matter, the online companies are not subject to the County's occupancy tax ordinance, then the County has no entitlement to the tax and has suffered no injury in fact. The court, with the consent of the online companies, recharacterized their motion for reconsideration as one made under Rule 12(b)(1). The court subsequently dismissed Pitt County's action for lack of standing, and the County now appeals.

II.

The issue before us is whether Pitt County is entitled to collect the occupancy tax on hotel rooms based on the rates charged by online travel companies when the rooms are re-let. We review de novo the district court's dismissal for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1). Evans v. B.F. Perkins Co., 166 F.3d 642, 647 (4th Cir.1999). In reviewing the dismissal, we are "not limited to evaluation of the grounds offered by the district court to support its decision, but [we] may affirm on any grounds apparent from the record." Suter v. United States, 441 F.3d 306, 310 (4th Cir.2006) (quoting United States v. Smith, 395 F.3d 516, 519 (4th Cir.2005)).

A.

The County's authority to tax room rental transactions within its borders is constrained by state statutory provisions as well as the language of the County's occupancy tax ordinance.

In 1987 the North Carolina General Assembly passed an enabling act that authorizes Pitt County to

levy a room occupancy tax of three percent (3%) of the gross receipts derived from the rental of any room, lodging, or similar accommodation furnished by a hotel, motel, inn, or similar place within the county that is subject to sales tax imposed by the State under G.S. 105-164.4(3).^*

1987 N.C. Sess. Laws 143. A tax levied pursuant to the enabling act is to be collected by the "operator of a business subject to the tax." Id.

Pitt County enacted an occupancy tax pursuant to the enabling act that essentially tracks the act's language. The County ordinance provides in relevant part that:

There shall be levied a room occupancy tax in the amount of three (3) percent of the gross receipts derived from the rental in the county of any room, lodging, or similar accommodation subject to sales tax under G.S. 105-164.4(3), which shall be in addition to any state or local sales tax.

Pitt County Ord. § 8-50.

N.C. Gen.Stat. § 105-164.4, the sales tax provision referred to in Pitt County's ordinance, levies the state sales tax on "retailers" and defines the term in the context of the rental of rooms and lodging as follows:

Operators of hotels, motels, tourist homes, tourist camps, and similar type businesses and persons who rent private residences and cottages to transients are considered retailers under this Article. A tax at the general rate of tax is levied on the gross receipts derived by these retailers from the rental of any rooms, lodgings, or accommodations furnished to transients for a consideration....

N.C. Gen.Stat. § 105-164.4(a)(3) (2007).

The parties agree that the scope of the County's occupancy tax is limited to businesses that fit the definition of "retailers" in § 105-164.4(a)(3).

With the statutory context established, we turn first to the issue of standing raised by the district court.

B.

In ruling on the motion for reconsideration, the district court analyzed the language of the sales tax statute and concluded that the term "retailer" as defined in N.C. Gen.Stat. § 105-164.4(a)(3) does not apply to the online travel companies. Based on this conclusion, the district court determined that Pitt County was not entitled to any revenue from the online companies under its ordinance and had consequently suffered no injury in fact. The court therefore decided that the County lacked standing to bring this action and dismissed it pursuant to Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction. We disagree with the district court's conclusion that it lacked jurisdiction.

The district court's analysis improperly conflated the threshold standing inquiry with the merits of the County's claim. "To satisfy the standing requirement of the case-or-controversy limitation on judicial authority found in Article III, Section 2 of the Constitution, the party invoking federal court jurisdiction must show that (1) it has suffered an injury in fact, (2) the injury is fairly traceable to the defendants' actions, and (3) it is likely, and...