California Superior Court Overturns $21 Million Anaheim Claim Against Online Travel Companies

For a PDF of the decision, click here:  "Anaheim Decision".

 

California Superior Court Overturns $21 Million Anaheim Claim Against Online Travel Companies

February 1, 2010 -- In the first court decision on the merits in California, a Los Angeles Superior Court judge today rejected the City of Anaheim's claims alleging that online travel companies (OTCs), such as Priceline, Expedia, Travelocity and Orbitz, owe hotel occupancy taxes and set aside the City hearing officer's ruling that the OTCs owed $21 million in back taxes.

Comment on the decision from Darrel Hieber, a Skadden Arps partner who argued the case:

"The issue at the heart of this case is simple:  Because online travel companies do not own, manage or operate hotels, they are not liable for hotel occupancy taxes.  We are pleased the Court, after careful consideration, agreed that the plain meaning of this type of occupancy tax statute simply does not cover OTCs.  This Court becomes the eighth around the nation to dismiss these types of claims on the merits, including two federal appellate courts.  We believe it shows a growing consensus that these types of claims lack support in law or fact.  We are heartened by the Court's decision, and hope it will encourage other municipalities to work with OTCs to increase local tourism through cooperation, rather than wasting time and energy on friviolous litigation."

Excerpt from the decision:

“In sum, based on the Hearing Officer's factual findings, and giving the words of the Anaheim ordinance their ordinary meaning in context, the OTCs cannot be found to be hotel 'operators,' hotel 'proprietors,' or 'managing agents' of a hotel.  ...  The Hearing Officer acted contrary to law in assessing a tax based on the consideration charged by the OTCs, transaction intermediaries who are not operators, proprietors or managing agents of a hotel.”

Background on the case:

The City of Anaheim began proceedings against the OTCs in October 2007 for failure to collect and/or remit transient occupancy taxes to the City.  On May 23, 2008, the City issued estimated assessments against the OTCs covering an eight-year audit period.  The OTCs appealed the assessments in June 2008 by demanding a hearing.

On January 28, 2009, the City hearing officer's ruled in favor of the City and determined that the OTCs were liable for tax assessments totaling $21,326,881.30.  The Hearing Officer ruled that each OTC was both "the proprietor" and the "managing agent" of every hotel in the City for which it books any room reservation.

The OTCs filed timely Petitions for Writ of Mandate in the Orange County Superior Court to set aside the assessments.  The City contended the OTCs were not entitled to challenge the tax unless they first paid the totality of the assessment, but the Orange County Superior Court trial judge disagreed, and that ruling was recently affirmed on appeal.  (Anaheim v. Superior Court (2009) 179 Cal.App.4th 825)  The OTCs then sought to have the Orange County Superior Court proceedings transferred to similar cases pending before the Los Angeles Superior Court, a transfer granted by the court.

The case was heard by Judge Carolyn B. Kuhl of the Los Angeles Superior Court.