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Cities File a Class-Action Lawsuit Against Online Travel Agents Expedia, Orbitz, Travelocity [05/26/2006]
Several cities around the country have sued Web-based travel clearinghouses such as Expedia, Travelocity and Orbitz, claiming they have failed to pay millions of dollars in hotel taxes.

The city of San Antonio filed a class-action lawsuit seeking to recover lost taxes, and Los Angeles, San Diego, Philadelphia, Atlanta and Chicago have filed similar suits. The state of Texas and its two biggest cities, Dallas and Houston, are considering their own actions.

The city of San Antonio believes online travel agencies negotiate room discounts from hotels, and sell the rooms at a markup to consumers. The agencies only pay hotel taxes on the wholesale price. "This scheme is being perpetrated by the Web-based hotel travel companies on every city and state in the country as far as we can tell," said a lawyer representing the city of San Antonio. Lawyers estimate the City of San Antonio loses as much as $2 million annually in missed tax revenue.

The San Antonio suit seeks taxes owed over several years and names 16 online agencies. A few of the named defendants include Expedia Inc., also the parent company of Hotels.com; Travelocity, a unit of Sabre Holdings Corp. and Priceline.com Inc.

Industry spokesman Art Sackler, who is executive director of the Interactive Travel Services Association, said "the city governments misunderstand the role and responsibility of the companies and the laws governing the transactions." Sackler continues "The web-based companies do not buy and resell rooms. Rather, they negotiate a lower price based on the value of the service they provide, creating a marketplace for consumers to find hotel rooms. The markup is a service fee."

An analyst with a travel-research firm claims "if the courts compel the companies to pay the taxes in the future or pay past taxes, the agencies probably will pass the difference on to the consumer. The cases could hinge on the companies' contracts with different hotels."

The same day San Antonio filed its lawsuit, a federal judge ruled that a Georgia class-action suit demanding "tens of millions" of dollars in unpaid hotel taxes could proceed.


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