From The New York Times:
There is a reason some online travel sites can offer cheap hotel rooms: State and local governments contend that the sites are not paying all of their taxes.
And faced with fast-shrinking budgets, those governments want the online travel services like Expedia Inc., Priceline, Orbitz and Travelocity to hand over what could amount to tens of millions of dollars.
The issue arises because the travel sites use a two-step process for billing and paying for hotel rooms. The site first bills the consumer for the cost of a hotel room, plus a service fee. Separately, the hotel pays taxes to local governments based on the price actually paid by the travel company — an amount less than the price the consumer pays.
Lawyers for the various governments argue that the travel companies owe hotel occupancy taxes based on the higher price consumers pay.
“That’s the insidious nature of this scam,” said Patrick O’Connell, a lawyer at Baron & Budd, a firm based in Dallas that represents municipalities seeking tax revenue. “The hotel pays tax on the amount that the hotel was paid. The city doesn’t have a clue that the transaction was actually conducted by the online travel company.”
Anaheim, Calif., is one of dozens of state and local governments trying to collect from the online travel services. This month, a city hearing officer concluded that travel companies owed Anaheim $21.3 million in back taxes, interest and penalties.
“There is no reason why online travel companies should be paying a different amount of taxes than others who book the same hotel rooms,” Mayor Curt Pringle of Anaheim said in a statement.