California Supreme Court: Online Travel Firms Are Exempt from Hotel Taxes

The California Supreme Court struck a tentative blow to local governments across the state Monday when it ruled that online travel companies such as Hotwire and Expedia are exempt from the hotel occupancy taxes normally levied on hotel operators. The ruling means a number of cities and counties will most likely miss out on millions of dollars in back taxes they were seeking to recoup.

Monday’s ruling stemmed from a lawsuit filed by the City of San Diego, which was seeking to recover around $21 million in back taxes. Other cities and counties have similar cases pending.

In exchange for the convenience and accessibility they offer, the online travel sites charge a higher rate for the hotels they book. At issue was whether the hotel bookers should pay a hotel occupancy tax based on that higher figure.

Though the Court agreed that taxes should be based on the higher rate, they rejected the idea that it was the online travel site’s responsibility. They “are not operators,” the Court said in its unanimous decision, and are therefore exempt.

Local governments might still be able to get their money, but they would have to go after the hotels instead.

Read more about the Court’s decision and its implications at the L.A. Times.