San Antonio Sues Expedia, Travelocity for Alleged Tax Shorting

The city of San Antonio is suing Expedia (EXPE), Travelocity and other online hotel booking agencies in an attempt to collect occupancy taxes it says the Internet companies aren't paying.

In its federal lawsuit, the city claims 16 online agencies paid taxes on wholesale room rates rather than the costlier retail rates billed to consumers.

City Attorney Michael Bernard said the practice had shorted the city about $10 million since 1999.

"If we're losing millions and millions of dollars, that means the online companies are simply lining their pockets with tax dollars that have been paid by the consumer, that are due to the city of San Antonio but are not being remitted," Bernard said.

A 16.75 percent tax on hotel and motel rooms includes a 6 percent state tax, 1.75 percent county tax and 9 percent local tax. The city uses its portion to finance cultural events, Convention Center projects and upkeep on historic landmarks.

Art Sackler, executive director of the Interactive Travel Services Association, an organization that represents several Internet travel operators, said the lawsuit is based on misconceptions about online travel companies. He said the companies don't rent rooms, they simply create a marketplace between buyers and sellers.

"The service fees in question are the companies' attempt to make money as intermediaries and not hotel operators," Sackler said.

Other cities, including Los Angeles and Atlanta, have filed similar lawsuits.

In Georgia, a federal judge ruled Tuesday that cities and counties there may proceed with a class-action lawsuit that claims major online hotel booking Web sites owe "tens of millions" of dollars in unpaid hotel taxes.

The judge rejected a request by 18 travel booking sites to dismiss the case, which was filed in November on behalf of nearly 500 cities and counties.