lodging or occupancy taxes
lodging or occupancy taxes
Many state and local governments impose special sales taxes on hotel rooms. Often called lodging or occupancy taxes, hotels must assess these levies against the price charged for a room. But what about travelers who book and pay for their rooms online using a third-party website like Expedia or Priceline? These online travel companies (OTCs) make money by paying the hotel less than the customer pays for the room. For example, if the OTC charges the customer $100 for a room, the hotel might receive $70, with the OTC keeping the remaining $30 as its fee.
Local governments understandably want to collect lodging taxes on the full $100. But their ability to do so depends on the wording of each locality’s tax laws. Recently, a state appeals court in Colorado rejected Denver’s efforts to collect its “lodger’s tax” from OTCs. The court said the tax ordinance, as written, did not apply to the specific services provided by these companies.
The city and county of Denver impose a 10.75% tax on lodging. Historically, Denver never collected this lodger’s tax on travel agents or other companies that aided travelers in making hotel reservations. But in 2010, Denver’s finance manager decided to assess lodger’s taxes against several OTCs. An administrative hearing officer upheld the manager’s decision and said the OTCs were liable for more than $8.1 million in unpaid lodger’s taxes dating back to 2001. A Colorado district court later reduced this award, holding the city could only collect about $3.5 million owed for the previous three years.
On July 3 of this year, the Colorado Court of Appeals went further than the district court and held Denver could not collect any lodger’s taxes from the OTCs. Judge Anthony J. Navarro, writing for a unanimous three-judge appeals panel, said Denver’s tax only applied to “vendors,” which meant those businesses “who actually furnishe[d] lodging.” The OTCs argued they only served as an intermediary between customers and lodging vendors; they do not provide any lodging themselves. Navarro agreed. At best, he said, the Denver tax ordinance was “ambiguous” on this point, and the law must be “strictly construed” in favor of the OTCs.
Navarro noted courts in Florida, Missouri and Texas held similar hotel taxes did not apply to OTC services. That does not mean such taxes can never apply, however, only that local governments must expressly amend their laws to cover OTC services.
Lucinda Rowlands has been the general manager at Zip2Tax since 2010. She has extensively researched sales and use tax regulations in order to help small businesses navigate complicated tax rules.