Houston Files Lawsuit Against Online Travel Companies

    May 30, 2008

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."