City of Philadelphia v. City of Philadelphia Tax Review Board
37 A.3d 15
Pa. Commw. Ct.2012Background
- Expedia is an online travel service that booked hotels for customers in Philadelphia from 2001–2005.
- Expedia contracted with area hotels to offer discounted rooms and to book reservations on customers’ behalf.
- Customers paid Expedia a discounted room rate plus various fees and the City Hotel Tax via Expedia’s processing.
- Hospitals? (no) The hotels issued invoices to Expedia, which remitted the room rate and Hotel Tax to the hotel.
- Board ruled Expedia was not a hotel operator under Philadelphia Code § 19-2401(7); trial court affirmed; the City appealed; the appellate court affirmed the Board’s ruling.
- Standard of review requires strict construction of tax statutes and deference to the Board’s interpretation of the Hotel Tax definitions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Expedia is an “operator” under § 19-2401(7). | Expedia argues it possesses the right to rent/lease overnight accommodations. | City contends Expedia does not possess such rights; hotels own and control rooms. | Expedia is not an operator; hotels retain control and possession. |
| Whether the Tax applies to Expedia’s fees or only to the room rate. | Expedia argues the Hotel Tax applies to consideration received by the operator, i.e., hotels. | City contends tax should be calculated on the amount charged to the customer, including Expedia’s fees. | Tax applies to consideration to the operator, i.e., the hotel, not Expedia’s facilitation fees. |
| When does the taxable transaction occur—at booking or at occupancy? | Expedia asserts a future expectation of occupancy does not constitute occupancy. | City argues the transaction occurs when consideration is received for the right to use a room. | Rental occurs only when the guest checks in and pays for a room. |
| Whether consideration emitted to the hotel constitutes the tax base. | Expedia contends the hotel is the recipient of consideration for the room. | City asserts the operator (hotel) receives consideration; Expedia acts as conduit. | Consideration emanates to the hotel—the operator; Expedia is not the operator. |
Key Cases Cited
- Ace Dump Truck Service v. City of Philadelphia, 631 A.2d 1072 (Pa. Cmwlth. 1993) (great deference to Board interpretations of hotel tax definitions)
- Kline v. Commonwealth, 899 A.2d 408 (Pa.Cmwlth.2006) (strict construction of tax statutes; agency deference to Board)
- Louisville/Jefferson County Metro Govt. v. Hotels.com, 590 F.3d 381 (6th Cir.2009) (online travel companies do not control rooms; not hotel operators)
- City of Findlay v. Hotels.com, 441 F.Supp.2d 855 (N.D. Ohio 2006) (online travel companies are not owners or operators of hotels)
- St. Louis County v. Prestige Travel, 344 S.W.3d 708 (Mo. 2011) (online travel companies’ role is facilitation, not operation)