Fla. tax rule possibly being updated

By Jessica M. Karmasek | Jun 17, 2011


TALLAHASSEE, Fla. (Legal Newsline) - Florida Gov. Rick Scott and the state's Cabinet have asked the state Department of Revenue to consider updating a decades-old tax rule to better determine whether online travel companies are avoiding state taxes.

Earlier this week, it was reported that state Rep. Rick Kriseman sent a letter to state Attorney General Pam Bondi in May, asking her office to crack down on the companies and forcing them to pay back millions in taxes.

In his letter to Bondi, Kriseman, a Democrat from St. Petersburg, asked her to prosecute companies like Expedia and Orbitz. He pointed to documents from the online travel companies showing that they have worked to avoid paying the taxes for years.

The documents were released by a Georgia appeals court in January. They show that lawyers and accountants for the online travel companies believed they could be required to pay hotel taxes in Florida and that Expedia, for one, was keeping money on hand to pay any uncollected taxes it might owe.

Kriseman said the documents are "evidence enough" that the attorney general should prosecute the case and collect more than $400 million in unpaid state taxes.

In 2009, former Florida Attorney General Bill McCollum sued Expedia and Orbitz for unfair trade practices.

However, Bondi had held off on the lawsuit to see if state lawmakers would exempt the companies from paying the taxes, a spokeswoman for the Attorney General's Office said this week.

Now, at the request of Bondi, the governor and Cabinet have asked the revenue department's executive director to devise a schedule to get public input on the current tax rule, the Miami Herald reported.

According to the Herald, Executive Director Lisa Vickers will report back at an Aug. 2 meeting.

This isn't the first time -- or state in which -- the online travel companies have been targeted for unpaid taxes.

Texas cities, in a lawsuit filed in May 2006, claimed the companies underpaid transient occupancy taxes by paying taxes only on wholesale room rates rather than the actual retail rates charged to customers who book their hotels online.

The online wholesalers purchase rooms at discounted rates and then make a profit by reselling the rooms to consumers at a higher retail rate. For example, if a company like Expedia pays $70 for a hotel room but later resells it for $100 plus taxes, then the company will only remit taxes for the lesser amount.

The online companies claimed they only connected consumers with good deals on rooms, the same way offline travel agents or tour operators do. Fees from traditional travel agents, tour operators and other middlemen have never been taxed.

On Oct. 30, 2009, a federal jury in the Western District of Texas found that the online companies should have been collecting more hotel occupancy taxes for payment to Texas cities. The jury awarded $20 million to more than 170 municipalities in the state.

However, the jury did not find convincing evidence that the booking services were collecting additional taxes and keeping the money for themselves, so they awarded no punitive damages.

From Legal Newsline: Reach Jessica Karmasek by e-mail at jessica@legalnewsline.com.

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