NEW ORLEANS – Accused of skirting state and local taxes, several online travel agencies have attracted the wrong kind of attention from prosecutors who are representing the State of Louisiana and the City of New Orleans in an effort to recoup millions allegedly owed in back taxes.
A lawsuit filed with the 19th Judicial District Court Parish of East Baton Rouge in late August, names as defendants several representatives from popular travel sites that include Priceline, Orbitz, Expedia, Hotwire, Travelocity, Hotels.com, Egencia, Travel, Trip Network, Internetwork Publishing, Site59 and a host of subsidiaries.
It's part of a growing, nationwide movement to level the playing field regarding online travel sites, which operate as travel agents and merchants under two distinct models.
The defendants broker rooms and collect commissions under the "agency model" and they sell room bought wholesale under the "merchant model," according to the complaint.
In both models, money typically doesn't change hands between the consumer and the owner of the accommodations. So the customer doesn't pay for the room or taxes, beyond being liable to having to settle up incidentals and other indirect charges.
This scheme has been going roughly 16 years and is alive and well today, New Orleans City Attorney Rebecca Dietz said.
"Every transaction booked through an online travel company cheats the City of New Orleans out of tax money owed through no fault of the consumer," Dietz told the Louisiana Record.
The types of transactions in question are unfair to local hotels that are tendering the appropriate taxes on books made through them directly, stated Dietz. And they're also misleading to consumers.
While the process is "suggesting that travelers are getting a bargain, (online travel agencies) are charging the same rates as the hotels themselves," Dietz said. "So there is no bargain for travelers, it is unfair to the local hotel industry and these companies are cheating local and state governments out of needed revenue."
New Orleans imposes a 14 percent hotel-motel tax on the retail rate paid by consumers for overnight accommodations. Local hotels and motels pay that tax through city and state entities, while online travel sites have refused to itemize taxes.
However, the defendants are certainly assessing taxes for the rooms they broker, according to the complaint. And that tax collection on the part of the defendants "creates a fiduciary duty between" them and the plaintiffs because the travel sites are "holding and handling money that does not belong to them," the complaint says
"The lost revenue that would be generated by these taxes would be spent on generating even more revenue through public safety, cleanliness, and economic development and visitor attraction efforts," Dietz said.
In backing up their claims, Louisiana prosecutors cited State Department audits of several online travel agencies over a 16-year period that ran from Jan. 1, 1998 to Dec. 31, 2015.
The auditor determined that, with penalties and interest included, Hotels.com owed at least $8 million, Travelocity and certain affiliates owed $6 million, Expedia and some of its affiliates owed $4.8 million, Priceline owed $1.3 million, Travelscape owed $338,000 and Orbitz owed $855,000.