Houston Files Lawsuit Against Online Travel Companies

Wants occupancy tax

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The city of Houston has filed a lawsuit against online hotel bookers for keeping money the city claims should go towards its occupancy tax.

"We believe the (online) companies are, essentially, pocketing the money that should go to occupancy tax," Mayor Bill White told the Houston Chronicle. "It’s unfair to those who are paying the price where the full taxes are paid."

The lawsuit is similar to one in San Antonio that won approval for class-action status this week, allowing other cites in the state and nation to join the suit. Houston says it will pursue its own case for now.

If the lawsuit is successful, White said it should not hurt tourism in Houston. "The Internet companies are obligated to charge a certain percentage of what they’ve collected," he said. "It should not affect hotel rates."

Hotels in Houston are required to pay the city the hotel-occupancy tax of 7 percent, based on the price of the rooms they sell. The city brought in $57 million in occupancy taxes in 2007.

On Tuesday, a federal judge granted San Antonio’s motion for class-action certification in its lawsuit against 16 companies including Hotels.com, Expedia.com, Priceline.com and Orbitz. The San Antonio suit alleges the online companies collect hotel tax at the retail rate but only pay taxes on the bulk wholesale rate they are charged.

The companies maintain they do not control occupancy and only offer a service for customers and should not have to pay the difference. They say the suit could hurt tourism.

"It just doesn’t make sense that increasing the costs of travel won’t decrease the amount of travel," said Paul Chronis, Orbitz’s lawyer. "That’s pretty basic stuff."


Houston Files Lawsuit Against Online Travel Companies
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  • Michael

    Um…I live in Houston and I wasn’t aware that my city was a tourist destination.  I mean, unless you’re traveling for business or trying to catch a peek of Janet Jackson’s nipple why would you come here….tourism…really? I mean…really????

    Incidentally the occupancy tax was put in place by Houston on rental cars and hotel rooms to pay for the construction costs of Minute Maid Park & Reliant stadium. I’m sure they’ve more than made their money back. Houston has a way of passing laws to tax things or add tolls to pay for construction costs…and then when the construction costs are covered they don’t repeal the tax or tolls and end up raising property taxes. Yay taxes….is it just me or are Americans getting taxed to death? 

  • http://www.FriendsTravel.net JESS Kalinowsky

    Why should a online booking engine like those mentioned be allowed to keep the tax collected instead of it going to the righful source.  IF they did not collect the tax, then that would be a different issue. But since they apparently do collect the tax, then it should go to the local government whose has imposed the tax.  That is only fair and reasonable.

    HOWVER several of the online booking engine are tettering on bankruptcy and probably starying alive with that money.  It is not logical that an online booking engine can sell rooms, or airline tickets, or car rental below the rate the hotel, airline or car rental company sells. 

    Unfortunately with advent of the internet, and therefore online booking engines, people have the feeling they are saving money, UNTIL there is a cancellation or change issue.  We get calls everyday to help clients who have bought and prepaid for hotels, car rentals, and hotels, and neglected to read that there is NO REFUND if cancelled. 

    The online booking engines are losing customers back to "real" travel agents every day.  Once the client gets burned by an online booking engine, they go back to their travel agent.

    Lesson to be learned, always use a professional travel agent for business or personal travel, and always buy travel insurance.

    During the recent AAmerican AAirlines debacle where the flights were cancelled for serveral days, ALL of our clients were re-accommodated in MINUTES.  NONE of them stood in long lines, certainly none of them were stranded for hours or days.  They emailed us, or called us, and we re-accommodated them on another airline in minutes.

    Use a travel agent, save youself some grief, and money!

    JESS Kalinowsky

    Professional Travel Consultant


    • http://www.travellinkco-ordinators.co.uk Nigel Simpson

      Well here we have Americans trying to tax Americans and Americans trying to Sell to Americans.

      Houston should wait until the online travel industry id fully fledged – then worldwide governments will be quick to re- tax.

      Online travel pays tax the hotels pay tax – no one should be asked to pay more tax to prop up power centres – who waste tax payers money every day. "Easy to spend someone else’s money!"

      Online businesses are innovations and are proving the spirit of free enterprise – freedom to grow and succeed where old fashioned agents failed,

      Don’t yet the old breed con you The internet is a blessing to worldwide choice and convenience and most online bookings are better protected by worldwide company links rather than out dated protectionist small timers -looking for any unethical angel to sell themselves and look after themselves not the customer, where ever they live.

      • reese

        You obviously don’t GET IT.  The consumer pays the tax on the full amount due.  YOU pay the tax, if you rent from the travel sites, such as Expedia, Travelocity, Orbitz, Hotels.com,  etc., etc.  You are contributing to the wealth of these internet hoteliers!  Go online and look at their financial statements!  They are astounding.  Meanwhile, your travel destination local governments have stressed budgets due to fewer tourists because of the failing economy.  The hotels pay the tax they are given by the internet retailers, and that goes to maintaining their counties and cities for the things tourists come for.  Do the math!  And who would you rather go to pot, the internet retailers or your favorite tourist destination?  Or do you vacation in the slums?

  • Guest

    Everyone has their own interest. There should be a better system for taxes

  • http://stores.ebay.com/Hughze-Beez hughze

    Occupancy taxes should be collected and paid by the hotels and not the online bookers. The taxes should be displayed as part of the cost issued by the hotels and then paid to the hotels in full.  Just one simple rule that could have been easily followed to avoid the problem.

    I imagine the booking companies need a fee for service but that shouldn’t include collecting occupancy taxes and paying it nor should it include keeping part of the taxes collected if that is what is happening.   

  • http://www.romanceexpressions.com Jay

    This sounds like past practices let them paid the wholesale tax rate.  I am guessing that none of the companies will agree to raise the additional money without a fight. 


    Romance Expressions’ Travel

  • http://www.accomodationplus.com.au Guest

    I relation to Jess’s response, the online bookers often only take a deposit, the full fee is paid to the hotel directly.

    So as others have correctly pointed out, it is the hotel’s responsibility to pay the tax, They are operating in the state and they collect the money.

    It would also be very hard to implement among many travel sites who use affiliate programs extensively. Am I, in Australia going topay a Houston tax – No way!


  • http://www.siyayasa.com Guest

    Isn’t it funny that whenever there is a cent to be made, the government is breathing in one’s neck for their share. Every where you go you hear about a government that is commited to job creation but they do not hesitate to demand a share of something that they never had a part in creating or maintaining. Internet costs in South Africa is rediculously high and if I had to pay taxes each time I turn my back then I will have to give my business up. That is not job creation nor is it commitment to job creation.

  • David

    I’m not sure that Agents are collecting the tax. As a UK agent a get a net rate from the hotel which I mark pu as I see fit. I can bundle this with flights and car hire and make a package. There is a fundamental problem:

    1. I do not know that there is a local tax to collect.

    2. If I did know they how am I expected to pay the tax collected?

    3. US laws do not apply in the UK so and you do set taxes here so why should I care?

    The simple solution is to have a fixed tax rate based on the hotels rack rate that they have to pay on every booking regardless of what they sold the room for. An occupancy tax is set on the premis that the occupier is using local resorces. They will use the same resorces regardless of the room price!!

    This is a typical ill thought out tax, now they can waste loads of money on a waste of time legal case LOL!

  • http://thelwsealsshow.blogspot.com/2008/09/sacramento-holels.html L.W. Of Sacramento Hotels

    The invention of the internet seems like it just causes so many new problems.  Should they even be entitled to have any money as long as their getting the base tax that they get?  I agree that those companies do provide an online service, and should not have to pay more just because the city is greedy.

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