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The Firm Pursues Class Action Against Internet Travel Companies

By Alan Riquelmy, Rome News-Tribune Staff Writer

Rome and several Georgia cities and counties got a win this week in a potential class action suit worth tens of millions of dollars against Internet travel Web sites.

U.S. District Court Judge Harold Murphy denied a motion to dismiss from the Web sites, saying Rome has the right to sue for possible lost excise taxes, though it doesn’t have the ability to sue for lost sales tax. That right belongs to the state revenue commissioner.

“We are pretty happy about it,” said City Attorney Bob Brinson. “We’re off and running.”

The suit alleges sites such as hotels.com, orbitz.com and travelocity.com haven’t remitted all the taxes owed to jurisdictions, including Rome, Cartersville and Hart County. It claims the travel Internet Web sites contract with hotels for reduced rates, then mark the rooms up for those who stay in them.

For example, a customer pays $100 for a room in Rome. The Internet company figures the tax based off that $100.

In the example, the suit alleges the company got the room for only $60 and pays Rome a tax based off that number and not the $100 the customer was charged.

“Defendants therefore are the only ones who know the total amount of taxes charged and collected and defendants, acting on their own, are retaining a portion of the excise taxes that defendants actually collect,” states the order. “The court therefore finds that plaintiffs have properly stated a claim against defendants for failing to remit the taxes at issue.”

Art Sackler, executive director of the Interactive Travel Services Association, said hotels negotiate with online companies, which market hotel rooms on their Web sites for the hotel’s charge plus a service fee. Taxes based on the negotiated rate are collected. But the service fees shouldn’t be subject to hotel taxes, he said.

“What these online guys do is enable these transactions. They are not by any definition a hotel operator because the service they provide is the travel Web site that allows customers to book hotel rooms,” Sackler said. “For the hotelier, ... they get instant access to millions and millions of consumers who otherwise don’t know they exist.”

Concerning the sales tax issue, Murphy granted the travel Web sites’ motion to dismiss, saying the state revenue commissioner has the ability to file suit to regain those funds, not cities or counties.

“If I were a city or county, I’d be ringing the commissioner’s phone off the hook,” Brinson said.

Murphy also denied a plaintiff request to require the revenue commissioner to join the suit.

A ruling from Murphy to make the case a class action lawsuit is expected in 60 days, Brinson said.

Similar lawsuits have been filed in other jurisdictions, including Atlanta, California, North Carolina and Ohio.