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Online travel companies agree to pay D.C. $61M to clear unpaid tax debt, if appeal is lost

Monday - 2/24/2014, 5:58pm  ET

The best known online travel brokers have agreed to pay D.C. more than $60 million to end a lawsuit brought by the District over unpaid hotel taxes — if an appeal to a higher court proves unsuccessful.

In September 2012, the District won its case in D.C. Superior Court against Expedia, Hotels.com, Hotwire, Orbitz, Travelocity and Priceline.com. Judge Craig Iscoe ruled at the time that online travel companies are liable for hotel taxes on the full, retail amount collected from travelers, not the wholesale booking rate the OTCs negotiate from the hotels.

Historically, OTCs have collected the city’s 14.5 percent hotel tax only on the wholesale rate — an amount that is turned over to the hotel and then forwarded to the D.C. tax office. City officials argue they’ve been shorted tens of millions of dollars as a result. They sued in 2011 to collect.

If the D.C. Court of Appeals upholds Iscoe’s decision, the District’s Office of the Attorney General announced Monday, then the companies will pay the city $60.9 million, plus interest. The OTCs will be required to post a bond to cover the liability amount as they pursue the appeal.

“This case sends the message that the District will vigorously enforce its tax laws and that all corporations, no matter their size or industry, have to pay their fair share of taxes,” Attorney General Irvin Nathan said in a statement.

According to the stipulated judgment, filed Monday with the Superior Court, the defendants have reached a confidential settlement agreement stipulating to monthly sales tax amounts and interest.

  • Expedia will pay $9.8 million for taxes unpaid between November 1998 and March 2011
  • Hotels.com will pay $10.04 million for taxes unpaid between February 1994 and March 2011
  • Hotwire will pay $1.85 million for taxes unpaid between January 2001 and March 2011
  • Orbitz will pay $2.02 million for taxes unpaid between April 2003 and December 2011
  • Travelocity will pay $2.6 million for taxes unpaid between April 2003 and December 2011
  • Priceline will pay the balance. Its settlement was reached separately.

Iscoe’s 2012 ruling declared that the District can collect sales taxes due from years ago, as the three-year statute of limitations does not apply.

“The gross sales tax law has applied to defendants at all times,” Iscoe wrote in a complicated, 41-page decision.

The contingent settlement closes the case before the Superior Court. The appeals have not yet been filed, but D.C. will ask that they be expedited.

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