Ill. municipalities sue to recover unpaid taxes from online travel companies

By Jessica M. Karmasek | Apr 8, 2013

CHICAGO (Legal Newsline) -- A group of seven Illinois local governments are suing to collect unpaid hotel taxes from a number of online travel agencies.

The cities of Warrenville, Oakbrook Terrace and Rockford and the villages of Bedford Park, Oak Lawn, Orland Hills and Willowbrook filed their 33-page complaint Friday in the U.S. District Court for the Northern District of Illinois.

Among the named defendants are online travel companies Expedia, Travelocity, Hotwire, Priceline and Hotels.com.

The municipalities filed the class action to address what they call "ongoing tax evasion" by the companies.

They contend the companies market and sell hotel rooms in the state, but fail to pay or remit taxes on the amount customers pay to stay in those rooms.

"As stated, Defendants' business practices include charging Consumers unitemized taxes and fees on each sale of Lodging. The Consumer is led to believe Defendants are remitting the correct amount of Accommodations Tax to Plaintiffs. Defendants, however, are calculating the tax liability of the general public (and Defendants) based upon the Wholesale Rate Defendants paid the Hotel for the room, not upon the Retail Rate that the Consumer paid Defendants," the municipalities wrote in their complaint. "As a result, the Accommodations Tax liabilities paid by the general public and owed to Plaintiffs are underpaid/unpaid by the Defendants who unlawfully retain the difference.

"These practices deprive Plaintiffs and the Class the full amounts due and owing to them from each sale of Lodging."

The cities contend the online companies, in failing to pay taxes on the full rates charged, maintain a competitive advantage.

"The lawsuit filed in Illinois seeks to even the playing field," said Thomas K. Prindable of Clifford Law Offices PC, a Chicago law firm representing the plaintiffs.

"There needs to be greater transparency in exactly what these companies are charging its online customers."

Paul A. O'Grady of Peterson, Johnson & Murray SC in Chicago, John W. Crongeyer of Crongeyer Law Firm in Atlanta, and William Q. Bird and Kristen L. Beightol of Bird Law Group in Atlanta also are representing the municipalities.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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