N.H. sues online travel companies, alleging underpayment of rooms-and-meals tax
Attorney General Joe Foster has filed a lawsuit against Expedia, Orbitz, Priceline.com and Travelocity, alleging the online travel companies are stiffing the state on money owed under New Hampshire’s 9 percent sales tax on hotel rooms, restaurant meals and car rentals.
The lawsuit, filed Oct. 16 in Merrimack County Superior Court and announced yesterday, claims the websites pay the meals-and-rooms tax based on the “wholesale” price they pay for hotel rooms and rental vehicles, not the “retail” price they charge customers. But, it says, the companies collect the tax from customers based on the higher retail price, and pocket the difference.
That likely costs the state hundreds of thousands of dollars a year in revenue, said Assistant Attorney General Philip Bradley, though he said there wasn’t enough information available to make a precise estimate.
The practice misleads consumers, he said, and isn’t fair to New Hampshire hotels and rental companies that sell directly to customers.
“It’s not really a level playing field,” Bradley said.
Eleven companies are named in the lawsuit. All are direct or indirect subsidiaries of Expedia, Orbitz, Priceline or Travelocity, according to the attorney general’s office.
Expedia said it doesn’t comment on pending litigation. Priceline, Orbitz and Travelocity didn’t return messages seeking comment.
Roughly 70 lawsuits have been filed in 25 states by local and county officials disputing the payment of occupancy taxes by online travel companies, according to a report from the Tax Foundation.
As of last May, the think tank said, the companies had prevailed in 18 of the 25 states, often by arguing that local hotel-tax laws didn’t cover online services.
“The scorecard is fairly mixed,” Bradley said, though he said many cases were still being litigated.
Under New Hampshire law, companies must collect and pay to the state a 9 percent tax on the price of vehicle rentals, prepared meals and hotel rooms. The taxable price of a hotel room is defined as “the consideration received for occupancy valued in money.”
The state’s lawsuit says that means the meals-and-rooms tax should be calculated based on “the gross amount each customer occupant . . . pays each defendant for a hotel room,” not the lower rate paid to the hotel by the online company. The same is true for car rentals made through the websites, the state said.
“Years ago, the defendants recognized an opportunity,” the lawsuit states. “They decided that if they collected taxes at retail (which is what customers expect to pay), but paid taxes at wholesale, they could make lots of money on the ‘spread.’ ”
The lawsuit also alleges the companies “attempt to disguise their deceptive trade practice . . . by improperly bundling their private profits (disguised as a ‘fee’) with taxes, such that the occupant cannot determine how much they paid in taxes.”
The lawsuit seeks, among other things, payment of back taxes owed and fines of up to $10,000 for each violation of New Hampshire’s Consumer Protection Act.
The online companies will have 30 days to file responses once they’re formally served with the lawsuit.
Bradley said the attorney general’s office has retained three Georgia law firms as outside counsel in the case; all, he said, have experience with similar lawsuits elsewhere.
(Ben Leubsdorf can be reached at 369-3307 or firstname.lastname@example.org or on Twitter @BenLeubsdorf.)