August 24, 2019

Colorado Court of Appeals: Online Travel Companies Do Not Actually Furnish Lodging and Therefore Are Not Liable for Lodger’s Tax

The Colorado Court of Appeals issued its opinion in Expedia, Inc. v. City & County of Denver on Thursday, July 3, 2014.

Online Travel Companies’ Collection of Municipal Taxes for Hotel Accommodations.

The City and County of Denver (City) imposes a Lodger’s Tax of 10.75% on the purchase price for lodging. “Lodging” includes overnight accommodations, furnished for consideration, in a hotel or similar establishment. The tax must be collected from travelers and remitted to the City by “vendors.” The City argued that plaintiff online travel companies (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.

The OTCs facilitate booking reservations on behalf of its customers. The OTC calculates the Lodger’s Tax based solely on the discounted room rate charged by the hotel, excluding the additional fees collected from the traveler and retained by the OTC. The OTC does not disclose to the 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.

The hotel invoices the OTC for the contractual room rate and the Lodger’s Tax on that discounted rate. The hotel assumes responsibility for remitting the collected Lodger’s Tax to the City. The Lodger’s Tax remitted is based on the discounted rate charged the OTC, but the City argued it should be based on the full amount paid by the customer to the OTC.

The City began investigating the OTC’s obligations under the Lodger’s Tax in 2003. The City took no action until 2010, when it issued the assessments at issue in this case. The City’s manager of finance issued Lodger’s Tax assessments to the OTCs from 2001 through April 2010 totaling $40 million.

The parties stipulated that if they 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. A hearing officer found that the OTCs were liable for the tax since 2001, and they owed interest and a 15% nonpayment penalty.

The district court affirmed, but found error in the hearing officer not having applied the ordinance’s three-year limitations period relevant to tax assessments. It therefore vacated the assessments to the extent they pertained to taxes payable more than three years before the date of the assessments. The OTCs appealed the portion of the order holding them liable, and the City cross-appealed the application of the statute of limitations.

The Court of Appeals held that the Lodger’s Tax did not apply to the fees charged by the OTCs for two reasons: (1) the OTCs are not vendors within the meaning of the ordinance because they do not furnish lodging, and (2) their fees are not included within the purchase price for lodging under the ordinance because the fees are not directly connected with the furnishing of lodging. The City argued that making sales of lodging is synonymous with selling lodging. The Court agreed that the OTCs are not vendors under the ordinance because they do not actually furnish lodging. It was an abuse of discretion to find otherwise.

The Court found that OTC fees are not directly connected with furnishing lodging because they are compensated only for providing travel-related information and online facilitation services. Therefore, under a provision of the Lodger’s Tax, their fees are excluded. The matter was remanded to vacate all of the tax assessments against the OTCs.

Summary and full case available here.

Print Friendly, PDF & Email

Speak Your Mind

*