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WASHINGTON - The Texas 14th Court of Appeals yesterday affirmed that online travel companies (OTCs) pay all of the taxes that they are legally required to, and that the City of Houston and the Harris County-Houston Sports Authority cannot impose taxes on them for their reservation services.
"We are pleased that the court properly interpreted the law, and correctly concluded that online travel companies do not operate hotels or underpay taxes," said Joe Rubin, President of the Interactive Travel Services Association (ITSA), the voice for the online travel companies and the companies that power the travel industry. "This is a victory for consumers and travelers, as well as the greater Houston area."
"We hope other municipalities will recognize this clear trend, and will read this thorough, well reasoned opinion," said Rubin. "As demonstrated by this strong opinion, there is little basis for litigation that some states and localities have pursued that ends up simply wasting taxpayer resources with unproductive litigation. We urge state and local taxing authorities to stop trying to balance their budgets on the backs of travelers."
Rubin said that the court's analysis reflects a correct understanding of the intermediary function served by OTCs, and the court found that OTCs do not merely help website visitors make a reservation, but they "help consumers make informed choices in spending their travel dollars, and to do so conveniently and efficiently."
The court went on to point out that an OTC "does not have rooms or occupancy… the OTCs do not have the right to use or possess hotel rooms. Instead, the OTCs have websites and provide information." Op. at 13. The court noted that "the OTC does not purchase the right to use the room and then resell that right to a consumer, and does not promise that any reservations will be made." Op. at 3. OTCs simply allow their customer to place a reservation with the hotel through the OTCs' websites.
The court also correctly applied long-standing rules of statutory construction in interpreting a tax statute: if the taxpayer's interpretation of the words of the statute is reasonable, the taxpayer prevails and any ambiguity must be resolved in favor of the taxpayer. Here the court held that the OTCs' argument that their compensation was not part of the "cost of occupancy" was reasonable, and that "the provisions at issue reasonably can be construed to tax only the amounts paid to hotels," so it ruled in favor of the OTCs.
(1) In cases where trial courts have ruled on the merits, the courts have ordered judgment for the OTCs in 14 lower courts, and judgments have now been affirmed by 5 appellate courts – two federal circuits, and three state appellate courts. The fourteen (14) lower court decisions were in: Orange, TX; Houston, TX; Findlay, OH; Columbus, OH; Pitt County, NC; Louisville, KY; Bowling Green, KY; Anaheim, CA; San Diego, CA; Philadelphia, PA; St. Louis, MO; Birmingham, AL; Santa Monica, CA; and State of Oklahoma. The five (5) appellate courts decisions were in Pitt County, Louisville, St. Louis, Bowling Green and now Houston.