Lawsuit Against Online Travel Companies Could Lead to Big Tax Windfall


Thomas Thrash of the Thrash Law Firm
Thomas Thrash of the Thrash Law Firm

As the legal battle between online travel companies and government agencies in Arkansas continues to make its way through the courts, a “conservative” estimate has surfaced that shows how much the OTCs might owe in back penalties and taxes, according to an attorney representing cities and counties in the case.

“We believe that the OTCs collected and failed to remit approximately $37.5 million to the State over the last 10 years,” attorney Thomas Thrash of Little Rock said in an email to Whispers.

He said that number is “a very conservative estimate.” And if interest and penalties are included, the state of Arkansas could recover more than $75 million.

Thrash also estimated that the cities, counties and advertising and promotion commissions could recover up to $50 million.

How much the online travel companies allegedly owed the state wasn’t calculated in the lawsuit, which was brought by Arkansas municipalities in 2009, and hasn’t been revealed until now.

“As you can see, this is a very important case to our state and local governments,” said Thrash, who represents Jefferson County, the city of North Little Rock and the Pine Bluff Advertising & Promotion Commission in the lawsuit against the OTCs, which was filed in Jefferson County Circuit Court. He also received class-action status to represent 43 A&P commissions in Arkansas, along with all counties and cities where hotels are located, in the suit against the online travel companies.

If you recall, for years OTCs such as Hotels.com, Hotwire, Expedia and Travelocity allegedly shorted tax revenue to Arkansas counties, cities and advertising and promotion commissions because they remitted taxes based on the room price they negotiated with hotels.

Meanwhile, they were collecting taxes from customers based on the higher price actually paid for the room and profiting from the difference.

The dispute over the future tax payments ended in 2019, when the Arkansas Legislature passed a bill that made it clear that online travel companies have to pay state, local and tourism taxes for booking the hotel rooms.

In the lawsuit, Jefferson County Circuit Judge Robert Wyatt Jr. ruled in 2018 that the online travel companies must remit all taxes collected.

But the OTCs have an appeal pending in front of the Arkansas Supreme Court involving a question of class certification.

Ryan Younger, an attorney at Quattlebaum Grooms & Tull of Little Rock who is representing the OTCs, declined to comment, citing pending litigation.