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Online Travel Companies Ordered to Pay $34M to Arkansas Tax Agencies

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A Jefferson County Circuit Court judge ordered online travel companies to pay $34.16 million Friday to Arkansas government agencies for not remitting taxes collected on the price of hotel rooms.

For years, OTCs such as Expedia, Priceline and Travelocity allegedly shorted tax revenue to Arkansas counties, cities and advertising and promotion commissions, as well as the state of Arkansas, because they remitted taxes based on the room price they negotiated with hotels.

“They collected the full amount of the tax and pocketed the tax money, and you just can’t do that,” said Little Rock attorney Thomas Thrash, who represented the Arkansas government agencies in the lawsuit filed in 2009. Thrash later received class-action status to represent 43 A&P commissions in the state, along with all counties and cities where hotels are located, in the suit against the OTCs. 

Thomas Thrash

“And the question has always been who gets to keep that money they collected? Should it go to the taxing authorities or should the online travel companies get to keep it?” Thrash told Arkansas Business Friday.

Jefferson County Circuit Judge Robert H. Wyatt Jr. ruled that the tax money should go to the government agencies.

“The OTC’s business practices and conduct are unprecedented,” Wyatt wrote in his 30-page filing. “The OTCs cannot point to other companies that use government tax rates, apply them to retail charges, and yet only remit the taxes on a lesser amount.”

Wyatt issued a judgment against Expedia and its entities for $26.5 million, Priceline for $6.1 million and Travelocity for $1.4 million.

“We’re just glad we were able to recover this money for the cities and the counties and the state and the A&P commissions,” Thrash said.

The OTCs argued that they weren’t involved in the sale of a hotel room, but the “facilitation of the sale of the hotel room,” Wyatt said.

Wyatt also ordered the OTCs to pay interest on the unpaid taxes.

“The OTCs have failed to provide any explanation for their failure to pay, for their blatant use of governmental tax rates, and for their collection and retention of tax monies,” Wyatt wrote. “And this conduct was no mistake. The fact that they did this for nearly 20 years undermines that it was anything but intentional.”

A&P commissions rely on the tax money from hotel rooms and restaurants to promote tourism in their cities or to promote the state.

At first, Arkansas cities, counties and A&P commissions may not have noticed that they weren’t receiving the full amount of taxes for the rooms booked online, Thrash had previously told Arkansas Business.

The OTCs have contracts with hotels to secure rooms at a discounted rate. The OTCs then market those rooms to travelers.

For example, if a traveler booked a $100 hotel room in a county that had a 12% tax rate, the OTC would collect $112 from the traveler, Thrash said. But the OTC might have paid only half as much for the room and, in that case, would send the hotel $56 — $50 for the room and $6 for the taxes, he said.

The OTC are accused of keeping the rest, including the additional $6 that the traveler believed was tax.

Wyatt awarded attorneys’ fees of $11.5 million, and each defendant will have to pay a third of its judgment amount. The attorneys’ fees will come out of the damages recovered.

The ruling is expected to be appealed to the Arkansas State Supreme Court.

Ryan Younger, an attorney at Quattlebaum Grooms & Tull of Little Rock who is representing the OTCs, didn’t immediately return a call for comment.

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