Hotel-tax boon waits on ruling
July 15, 2009
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| Travel costs: Web sites that book rooms pay a negotiated price to the hotel, then sell them at a higher rate. (Cindy Chew/The Examiner) |
SAN FRANCISCO — San Francisco has received $35 million after two online hotel-booking Web sites paid back taxes, but there is one large caveat: The City must wait to spend it.
At issue is the 14 percent hotel tax that’s paid each time a room is booked in San Francisco, and what surcharge should be paid if the room is reserved at one rate and then sold again for a higher price.
The online booking companies — which include Expedia, Hotwire, Priceline and Travelocity — pay for hotel rooms at a negotiated rate before selling them at a higher price.
For years, the companies were paying the tax on the amount they paid for the room. The City, however, wanted to charge the tax based on the amount the consumer paid. That occurred in 2003 when then-Treasurer Susan Leal called for a review of what the booking companies were paying for a room versus charging for one. The profits the companies make range from 20 to 35 percent.
Expedia and Hotwire — which combined paid San Francisco the $35 million Monday — sued over the tax in May. Those companies, along with Priceline, which owes The City $3.5 million, and Travelocity, which is on the hook for $2.5 million, have claimed in lawsuits that the extra tax is “unauthorized, unconstitutional and excessive.”
A Los Angeles County Superior Court judge decided in June that until the final ruling is made, the $35 million would have to be paid by Expedia and Hotwire. But the money must sit in The City’s coffers, as it cannot be used until the case is resolved, according to City Controller Ben Rosenfield.
If the companies win their appeal, San Francisco will have to give the money back. An attorney for Expedia, Brian Hershman, declined to comment on the case.
Deputy City Attorney Jim Emery, who represents San Francisco in the lawsuit, said the final ruling could take longer than a year and a half. The City is seeking a resolution that would require these companies to pay more hotel tax in the future.
bbegin@sfexaminer.com
