Metropolitan News-Enterprise


Monday, November 5, 2012


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C.A. Rejects Cities’ Bids to Collect Bed Taxes From Online Sellers




The Court of Appeal for this district has rejected efforts by two Southern California cities to collect transient occupancy taxes from online travel service companies.

In a pair of unpublished opinions Thursday, Div. Two said Santa Monica and Anaheim could not collect the taxes from the operators of Expedia, Hotwire, Priceline, Orbitz, and Travelocity because those companies are clearly not covered by the language of the city’s ordinances.

Santa Monica imposes a 14 percent tax on “each and every transient” and defines a transient as a “person who, for any period of not more than one month either at his own expense or at the expense of another, obtains lodging or the use of any lodging space in any hotel as hereinafter defined, for which lodging or use of lodging space a charge is made.”

Anaheim Tax

Anaheim’s tax is 15 percent, and is imposed on ““any person who exercises occupancy, or is entitled to occupancy, of any room . . . in any hotel.” 

Los Angeles Superior Court Judges Carolyn B. Kuhl and Elihu Berle found the companies not liable for the taxes, and the Court of Appeal agreed. Justice Victoria Chavez authored both opinions.

Chavez noted that online travel service companies, or OTCs, do not own possess or operate hotels or other entities such as airlines or rental car companies, but merely provide information and take reservations in exchange for a commission. The cities alleged that they are being shortchanged because the OTCs take their commissions out of what the consumer pays, then remits the rest to the hotels, who then pay tax on the amounts they receive, rather “the total charge for lodging.”

The clear meaning of the ordinances, the justice said, is that tax is only chargeable on “the amount that the hotel itself charges and receives.”

The jurist also rejected the cities’ arguments that the OTCs are agents of the hotels.

In the Santa Monica case, Chavez said the agency issue was irrelevant, because “the city has not convinced us that the OTCs’ commissions must be considered to be money ‘paid for room rental . . . to any hotel.’” Cases cited by the city dealing with insurance commissions, she said, are “limited to the insurance context.”

She added:

“Even if the OTCs are agents for the hotels, claims against an agent are limited to what the claimant is entitled to demand from the principal. ...The OTCs charge and retain their commissions for their own benefit, not for the benefit of the hotels.  The hotels have no claim to the commissions.”

Not ‘Managing Agents’

In the Anaheim case, the city claimed that the OTCs are liable as “managing agents” of the hotels under the ordinance. But Chavez said the term must be limited to the meaning set forth in Civil Code Sec. 3294, so that the relationship between the agent and the principal must be such that the agent’s conduct would subject the principal to punitive damages.

That clearly is not the case here, the justice said. “…OTCs do not supervise any hotels or any hotel employees,” the jurist said.

The cases, both styled In re Transient Occupancy Tax Cases, are Nos. B230457 and B236166.


Copyright 2012, Metropolitan News Company