Online travel agencies skirt lodging taxes

Online travel companies are not required to collect state and local taxes and pay them to the jurisdictions that assess them, the Colorado Court of Appeals ruled Thursday.

In a case involving Denver’s lodging tax and several online booking companies such as Orbitz and Expedia, a three-judge panel of the appeals court unanimously ruled that the city’s attempt to tax the fee the online companies charge its customers is not covered under the city’s lodging tax law.

As a result, the city won’t get the $40 million in back taxes it was trying to collect.

“The OTCs are not vendors within the meaning of the (lodging tax) ordinance because they do not furnish lodging,” Judge Anthony Navarro wrote in the ruling, which was joined by Judges Daniel Taubman and Arthur Roy. “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. Accordingly, neither the OTCs nor their customers are liable for the lodger’s tax.”

Debbie Kovalik, executive director of the Grand Junction Visitor & Convention Bureau, said the issue isn’t just a Denver one.

She said it’s something all local governments have struggled with for years, and things are getting worse as more hotel rooms are booked through such online companies.

But getting to a solution, which for Kovalik is to get them to pay the tax, isn’t an easy one because the companies aren’t required to tell anyone who’s booking what and where.

“Nailing this down is like trying to nail jello to a wall; you can’t do it,” she said. “You don’t even know who to go after because you don’t know who’s doing it the most, how often they are doing it. They have no obligation as private business corporations to tell you how many room nights they booked.”

Kovalik said smaller towns such as Grand Junction are looking to bigger cities, such as Denver or Chicago, to help solve the problem.

While Grand Junction may be losing thousands of dollars in unpaid lodging taxes, those bigger cities are losing millions, she said.

“We can’t even estimate that loss,” she said. “It could be 10 percent, it could be 30 percent. Our total collections (of the tax) are $1.7 million, so if it were even just 10 percent, that’s $170,000. It’s a lot of money.”

The lodging tax matter is part of a greater issue involving states and local governments to collect taxes from out-of-state retailers, particularly those that sell their goods over the Internet.

In February, a Denver District Court judge approved a preliminary injunction blocking the state’s so-called Amazon tax, a 2010 law that attempted to force online retailers to pay the state’s 2.9 percent sales tax.

The court ruled that the plaintiffs in the case had a reasonable chance of getting the law ruled unconstitutional on grounds that it discriminated against out-of-state retailers.

During this year’s legislative session, lawmakers tried to deal with that issue when it passed HB1269, a measure that attempts to create “a nexus” that out-of-state retailers selling to in-state consumers operating on their computers gives them a physical presence here, and therefore subject to state taxes. That measure was one of the new laws that went into effect on Tuesday.

Like other states, Colorado cannot require out-of-state retailers that don’t have a physical presence in the state to collect and remit sales taxes.

Legislative budget writers estimate that there may be about $68 million in uncollected sales taxes due to the state from such companies.

Denver is expected to appeal the lodging tax case, Expedia v. Denver, to the Colorado Supreme Court.


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