Expedia Owes Hotel Taxes to City; Will It Set a Precedent?

(MoneyWatch)  A judge ruled that Expedia must now pay the full hotel taxes for hotel rooms booked in Columbus, Ohio, putting it on the hook for more than $70,000 and potentially establishing an unwanted precedent for other online travel companies.

The city government filed a complaint against Expedia in May 2006, claiming Columbus was being shortchanged on hotel tax collections, for which the city gets seven percent of the rate lodgers pay. Expedia negotiates with local hotels to get rooms at a discounted or wholesale rate, then charges the consumer a higher amount. Court records showed that although the company charged consumers the full or retail amount, it paid hotel taxes on the wholesale rate and kept the rest.

The city contended that under state and local law, the taxes should be based not on what the hotels charge Expedia, but on what Expedia charges its customers. On Monday, Superior Court Judge Doug Pullen agreed, ordering Expedia to use that formula for collecting taxes from now on.

Expedia, like other online companies, has argued that it's not subject to such regulation because it's not a hotel and thus not required to collect the extra taxes.

I wrote about this a few weeks ago, noting that now several cities, including Atlanta, Los Angeles and Miami, have filed similar lawsuits. This is one decision I'm sure online companies like Expedia and Travelocity will fight tooth-and-nail.