City can collect more tax from hotel booking sites

In a split decision that could potentially mean more than $7.5 million for Denver’s city coffers — and cost consumers more to book a hotel room in the city — the Colorado Supreme Court on Monday said online travel companies failed to properly charge taxes on rooms booked through them.

The fees owed by online businesses including Expedia, Hotels.com, Hotwire, Orbitz, Priceline and Travelocity stretch at least from 2007 to 2010 — when Denver first assessed the overdue taxes on them — and could reach as far back as 2001. Additionally, both sides agreed for the case to clear the courts before deciding whether the companies owe the city anything for the years 2011 to the present, an amount that could easily top $10 million.

The decision could have implications for a similar lawsuit sitting at the appellate court in which the travel companies were found to not be responsible for collecting the additional lodging taxes in towns such as Breckenridge.

Denver assessed the overdue taxes after the city determined the companies only collected them on the discounted price they paid the hotels for a room, not the amount consumers actually paid.

So if an online travel company, or OTC, agreed to pay a Denver hotel $75 for a room, and charged the consumer $100, it computed the tax on the $75. The city’s lodging tax is 10.75 percent.

The companies — which also included CheapTickets.com, Travel Webb and Site59.com — appealed to the city and lost; then sued in Denver District Court, losing again on the tax issue, though the judge said the city could only collect for the preceding three years, not 10.

The judge awarded the city $3.56 million in uncollected lodging taxes, $1.25 million of it assessed against Expedia, court records show. The city initially asked for $40 mil-

lion for the 10-year period.

Both sides appealed to the Colorado Court of Appeals, which only ruled for the companies, saying Denver’s rule on lodger taxes was too ambiguous to force the companies to collect the taxes on the whole amount. It did not decide on whether Denver was limited to only three years’ worth of uncollected assessments.

In a 4-3 decision, the Supreme Court reversed that judgment and ordered the appellate court to decide on the Denver timeline issue, as well as other smaller matters. No matter how the appeals court decides on the timeline, it’s likely the losing side will appeal anew to the Supreme Court.

“The fair and reasonable interpretation of Denver’s lodger’s tax article is that it imposes a duty on the OTCs to collect and remit the prescribed tax on the purchase price of any lodging they sell,” Justice Nathan Coats wrote for the majority, “to include not only the amount they have contracted with the hotel to charge and return, but also the amount of their markup.”

Key in the decision was the determination that companies are vendors of rooms, not unlike the hotels themselves, since they provide customers with the right to the overnight use of a room. Justice Richard Gabriel, in his dissent, indicated the city’s tax code was so vague that online companies could not be vendors since they don’t physically furnish the rooms.

Attorneys for the companies refused to comment on the decision or its impact on other pending cases.

“Today we saw the right outcome of arduous work by the city to ensure that tourism dollars are being invested right back into our community,” said Amber Miller, spokeswoman for Denver Mayor Michael Hancock. “This is a notable ruling nationally as well as locally to ensure we keep our cities great places to experience.”

The issue of uncollected lodging taxes is a national concern, with more than 92 lawsuits filed by state and local officials in 34 states, according to 2016 figures from the Tax Foundation in Washington, D.C. Of the 49 cases to reach a decision, just 10 involving six states and the District of Columbia have concluded the online companies are required to collect the tax on the total amount a consumer pays for a booking. The other 39 ruled for the online businesses.

Only 14 of the cases remain in the courts and the other 29 were dismissed or settled, according to the foundation.

The Breckenridge case sought class-action status, which the judge in Summit County District Court denied. Because municipalities write tax laws differently, the impact of Monday’s decision in Denver on other cases is unclear.