City of Goodlettsville v. Priceline.com, Inc.
844 F. Supp. 2d 897
M.D. Tenn.2012Background
- This is a Tennessee-based class action where the City of Goodlettsville sues Priceline, Travelocity, Expedia, Orbitz, and affiliates (OTCs) over hotel occupancy taxes; cross-motions for summary judgment were filed and the court grants the defendants while denying the City’s motion.
- OTCs market hotel rooms under a Merchant Model, paying hotels a net rate and selling rooms to consumers at a marked-up retail rate; the OTCs do not take title to rooms and do not physically possess or control rooms.
- The local Tax Ordinance imposes a 3% occupancy tax on “consideration charged by the operator,” with definitions mirroring the Enabling Act; plaintiffs argue the net rate or markup is taxable as charged by the operator.
- The court reconsiders Goodlettsville’s earlier dismissal ruling in light of later cases and the evolving statutory interpretation, including Sixth Circuit and Texas/other state precedents.
- The court concludes the Tax Ordinance text should be read strictly against the taxing authority; it finds OTC Merchant Model does not constitute “operation” of a hotel under the ordinance and taxes on the net rate, not the retail markup, are appropriate under Tennessee law.
- The judgment dismisses all claims seeking tax on the OTCs’ markup and leaves open potential legislative changes if the legislature chooses to amend the law
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Taxable scope of ‘operator’ under the Tax Ordinance | City contends OTCs are operators and taxes apply to the retail rate | OTCs do not operate hotels; tax should apply to net rate only | OTCs are not operators; tax applies to net rate, not markup |
| Tax base: retail rate vs net rate | City seeks tax on entire transaction, including markup | Tax should be on consideration charged by the operator (net rate) | Tax on net rate; retail markup not taxable under the ordinance |
| Effect of post-Goodlettsville precedent on interpretation | Earlier Goodlettsville holding dictates tax application | Louisville/Jefferson II and Houston/San Antonio developments require reanalysis | Strict construction against tax authority; OTCs favored; no retroactive effect on existing revenues |
Key Cases Cited
- Louisville/Jefferson Cnty. Metro Gov’t v. Hotels.com, 590 F.3d 381 (6th Cir. 2009) (endorsed Pitt County reasoning; OTCs not operators; supports strict construction against tax authority)
- Pitt County v. Hotels.com, 553 F.3d 308 (4th Cir. 2009) (statute limited to actual operators; do not expand to OTCs)
- City of Philadelphia v. Hotels.com, 37 A.3d 15 (Pa. Commw. Ct. 2012) (taxability of OTCs under local hotel tax examined; court refused broad expansion of tax base)
- City of Houston v. Hotels.com, 357 S.W.3d 706 (Tex.App. 2011) (state appellate holding that tax targeted the hotel, not OTC markup; informs competing views)