Worcester sues travel sites

By Jenny Hopkinson

SNOW HILL -- Worcester County officials have accused several online travel companies of withholding taxes levied on the sale of hotel rooms.

Through a suit filed in U.S. District Court in Baltimore, the County Commissioners hope to recover past and present occupancy taxes they claim have been underpaid by 14 online travel companies, said county spokeswoman Kim Moses.

"In essence, these companies purchased blocks of rooms at reduced rates. Those rooms were then resold at higher rates, though the sales and use tax that was remitted to the county was based on the lower rate," Moses said.

According to Finance Officer Harold Higgins, the county stands to gain $3 million to $15 million for money owed between 1997 and 2005 if successful in the suit. If the travel sites are found not to be at fault, there will be no cost to the county.

"It's based on a contingency fee -- we win, (the law firm) takes a third and we get the rest," Higgins said.

The suit, filed by Lovell, Mitchell and Barth LLP, a Washington state firm, points a finger at Priceline.com, Travelocity.com, Expedia Inc. and Orbitz.com for charging the tax as part of their fees but then failing to return the money to the governments.

With this suit, Worcester County joins several governments across the country -- including Baltimore, Chicago, Philadelphia and Florida's Miami-Dade County -- seeking taxes never paid by the online companies. The first was filed in Los Angeles in 2004, and the case is expected to go to trial later this year.

Plaintiff attorneys are confident that a condition in the county's code may make it easier for Worcester County to recover money owed.

However, Art Sackler, executive director of the Interactive Travel Services Association -- a trade group for online booking sites -- said the county and other municipalities involved in similar suits may not be as successful as their lawyers predict.

"The way this business model works, the hotels will negotiate a rate with online travel companies," Sackler said. "That rate sometimes is at a discount to the other rates the hotels have, and sometimes it isn't. ... The hotel also tells the companies what the tax is -- so the room rate and the tax rate is then sent back to the hotel."

Sackler said that the difference in price between what the hotel charges the travel company and the amount paid by the consumer is due to a service fee the companies collect to facilitate the booking.