June 16, 2019

Colorado Court of Appeals: Online Travel Companies Not Required to Remit Accommodation Tax to Town of Breckenridge

The Colorado Court of Appeals issued its opinion in Town of Breckenridge v. Egencia, LLC on Thursday, January 25, 2018.

Taxation—Municipalities—Accommodation Tax—Lessors—Renters—Online Travel Companies—Jurisdiction—Exhaustion of Administrative Remedies—Class Certification.

The Town of Breckenridge sought to collect accommodation and sales taxes from 16 online travel companies (OTCs). The OTCs maintain websites through which travelers can book hotel accommodations and travel-related services. As relevant here, under the “merchant model” the OTCs contract with a hotel to allow customers logging into the OTC’s website to book reservations for the hotel. These contracts offer rooms to OTCs at a discounted rate. OTCs coordinate information between travelers and hotels; OTCs neither purchase nor reserve rooms in advance.

Breckenridge brought this action to recover unpaid accommodation and sales taxes from the OTCs, asserting five causes of action. The district court partially granted the OTCs’ motion to dismiss but refused to dismiss the accommodation tax claim. Breckenridge then unsuccessfully sought class certification for 55 home rule cities that also levy a lodger’s or accommodation tax. The parties filed cross-motions for summary judgment, which were resolved in favor of the OTCs.

On appeal, Breckenridge contended that the district court erred in concluding that OTCs are neither “lessors” nor “renters” of hotel rooms because they sell the legal right to use hotel rooms in exchange for consideration. Breckenridge asserted that the OTCs are capable of leasing or renting even without physical possession of hotel rooms. Because the hotels maintain possession of the rooms and are the sole grantors of the right of occupancy, hotels are lessors or renters and OTCs are essentially brokers. The accommodation tax statute indicates that the accommodation tax applies only to those who have a possessory interest in the accommodation being taxed. The OTCs had no possessory interest and were not engaged in the business of owning, operating, or leasing, and could not independently grant customers access to rooms, so they are not subject to Breckenridge’s accommodation tax.

Breckenridge also contended that the court erred in granting summary judgment because issues of fact exist. Breckenridge failed to meet its burden of producing sufficient evidence to establish that a genuine issue of fact exists as to whether OTCs acquire inventory, whether the OTCs provide customer service, and the extent of the hotels’ involvement in merchant model transactions. The court properly granted the OTCs’ summary judgment motion.

Breckenridge also contended that the district court erred in concluding that it lacked subject matter jurisdiction over its sales tax claim because Breckenridge failed to exhaust administrative remedies. Breckenridge argued that it was not required to exhaust its own administrative remedies because doing so would be futile and whether OTCs are subject to sales tax was a question of law not subject to exhaustion requirements. It is evident from the Breckenridge Town Code that a party’s first step in seeking relief for unpaid sales taxes is to petition for administrative review from the finance director. Breckenridge failed to take this step. Therefore, the district court lacked subject matter jurisdiction to address Breckenridge’s unpaid sales tax claim.

Finally, Breckenridge contended that the district court abused its discretion by denying Breckenridge’s request for class certification. Breckenridge was not entitled to class certification under C.R.C.P. 23(b)(2) because Breckenridge was seeking primarily monetary damages, and it failed to meet the C.R.C.P. 23(b)(3) requirements because there was no predominance of common questions nor was class action the superior remedy.

The judgment was affirmed.

Summary provided courtesy of Colorado Lawyer.

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