Local governments take online travel agencies to court

Hundreds of municipal governments in the United States allege that Expedia, Travelocity and Orbitz, as well as a long list of smaller online travel booking websites, have collected hotel tax from clients, but failed to pass these on to local officials, keeping the proceeds for themselves instead. In some cases, the cities allege that online travel sites are failing to collect taxes in the first place, or are keeping incomplete records of them, according to a report in the Wall Street Journal.

The problem, however, is that the Interactive Travel Services Association-which currently represents most major internet-based travel booking sites-believes that its members are not actually obliged to go beyond what they are already doing in terms of hotel taxes. The Association argues that its members cannot be forced to pay the outstanding taxes currently being claimed by US municipal governments. Yet some local authorities believe that they could be tens of millions of dollars short due to the fact that online agencies have either not collected or failed to forward money paid for taxes. In fact, cities in Florida claim that they are owed some $22 million in unpaid taxes. Louisville (Kentucky) is arguing that it alone has been short changed by around $10 million, while Charlestown (South Carolina) would like to recover at least $450,000 from these online companies.

Most legal experts, however, believe that this will be a complicated court case, as the vast majority of the taxes in question were formulated before the dawn of the internet and, as such, did not take into consideration travellers arranging hotel and other reservations from all corners of the globe.

Thank you to Stephanie Chen of the Wall Street Journal for the initial report.

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