Wake County v. Hotels.com, L.P.
762 S.E.2d 477
N.C. Ct. App.2014Background
- Four North Carolina counties (Wake, Dare, Buncombe, Mecklenburg) sued ~11 online travel companies (OTCs) alleging OTCs charge consumers marked-up hotel rates, collect occupancy taxes on those retail prices, but remit taxes to counties based on lower wholesale rates paid to hotels.
- Counties sought declaratory relief, recovery of unremitted taxes, accounting, conversion, constructive trust, and penalties; cases were consolidated and assigned to the Business Court; cross-motions for summary judgment followed.
- County ordinances levy occupancy taxes on "gross receipts" from rentals that are subject to the State sales tax under N.C. Gen. Stat. §105-164.4(a)(3); plaintiffs argued OTC receipts are taxable under that scheme.
- Defendants operate websites selling hotel stays (taking payment, sometimes charging facilitation fees) but do not own or operate physical lodging establishments; defendants argued they are not "operators" or "retailers" under the statute or county ordinances.
- The trial court (Judge Murphy) granted summary judgment for defendants: held OTCs are not retailers/operators under §105-164.4(a)(3), counties’ ordinances therefore do not reach OTC gross receipts, contractual and collected-but-not-remitted claims failed, and equitable claims were dismissed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1. Liability under county ordinances (are OTCs taxable "operators/retailers"?) | Counties: Ordinances tax gross receipts from rentals; OTCs collect tax from occupants on retail price and thus are liable. | OTCs: Not operators of hotels/motels/tourist camps or similar businesses; they merely facilitate bookings and do not fall within §105-164.4(a)(3). | Held: OTCs are not "operators/retailers" under §105-164.4(a)(3); ordinances do not apply to OTC gross receipts. |
| 2. Contractual obligation to collect/remit tax | Counties: OTCs have contractual relationships/agency with hotels and thus assumed duty to collect and remit full tax. | OTCs: No contractual duty alleged with sufficient specificity; plaintiffs failed to plead a cognizable contractual undertaking. | Held: Dismissed — plaintiffs failed to plead notice of a contractual obligation claim; summary judgment affirmed. |
| 3. Collected-but-not-remitted theory (recovery for taxes charged to consumers but not remitted) | Counties: OTCs charged tax on retail price and retained the difference; should remit the full amounts collected. | OTCs: No statutory or contractual duty to remit those amounts; no controlling precedent in NC imposing such duty. | Held: Summary judgment for defendants — no legal duty shown; prior denial of 12(b)(6) did not bar Rule 56 determination. |
| 4. Equitable remedies (accounting, conversion, constructive trust) | Counties: Seek accounting and equitable relief to recover and trace funds allegedly retained by OTCs. | OTCs: No underlying legal obligation to collect/remit tax, no identifiable earmarked funds, and no facts showing unjust enrichment or fiduciary duty. | Held: Denied — accounting, conversion, and constructive trust claims fail (no legal duty, no identifiable/earmarked funds, no inequity). |
Key Cases Cited
- Pitt County v. Hotels.com, GP, LLC, 553 F.3d 308 (4th Cir.) (online travel companies are not similar-type businesses to hotels for purposes of sales tax provision)
- Variety Wholesalers, Inc. v. Salem Logistics Traffic Servs., LLC, 365 N.C. 520 (N.C.) (conversion requires identifiable funds; electronic transfers may be identified by source, amount, destination)
- Barbour v. Little, 37 N.C. App. 686 (N.C. Ct. App.) (Rule 12(b)(6) tests complaint sufficiency; summary judgment under Rule 56 may later dispose of claims)
- State v. Ward, 364 N.C. 157 (N.C.) (statutory construction: give plain meaning when unambiguous)