Litigation Ongoing against Online Travel Companies for Hotel Occupancy Taxes

State and local officials in 34 states and the District of Columbia have filed lawsuits against online travel companies (OTCs), seeking to apply hotel occupancy taxes to OTC services. OTCs facilitate booking transactions between consumers and hotels, and hotel tax is imposed on the amount received by the hotel from the consumer. The lawsuits seek to also apply hotel tax on the amount kept by the OTC as a service fee. Courts in 23 states have concluded that OTC services are not subject to hotel occupancy taxes, including three federal courts of appeal, while courts in six states have ruled otherwise. Most states exempt services from their sales tax but seek to subject OTC services to the higher hotel occupancy tax. The OTC litigation trend also raises concerns about administrative re-casting of old tax statutes to new situations not meant to be included, about the role of private contingency-fee lawyers in pursuing government tax claims, and whether ambiguous tax statutes should be resolved in favor of government or taxpayers. Congressional pre-emption of a category of state taxation is justified if states are imposing a discriminatory and excessive burden on interstate commerce.

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