The issue in the case is whether the city of San Diego may impose transient occupancy tax (TOT) on online travel companies (OTCs) for their online booking sales of hotel rooms located in San Diego. The OTCs named in the case include Priceline.Com, Travelweb, Expedia, Hotwire, Orbitz, Trip Network (Cheaptickets.com), Internetwork Publishing (Lodging.com). LowestFare.Com, Travelnow.Com, Hotels.Com, Travelocity.Com and Site59.Com.
The San Diego action is one of several “Transient Occupancy Tax Cases” in which certain California cities have sought to impose TOT liability on the major OTCs for their online hotel room booking sales. The cases have been coordinated in Los Angeles County Superior Court and the 2nd District Court of Appeal. The TOT assessments generally at issue in the cases are based on the TOT the OTCs owe on the difference between the wholesale price of the rooms they secure from hotels for resale and the retail sales price (including OTC service charges and markups) that OTC customers/transients pay for the rooms through OTC online bookings.
The Superior Court had earlier ruled in the San Diego case that, under the language of the city’s TOT ordinance, the OTCs have no TOT obligations or liability to the city for their service charges and markups. The city appealed and the Court of Appeal affirmed. The court concluded that the TOT ordinance imposes TOT only on rent charged by hotel operators. Since the OTCs are not hotel operators, then OTC service charges and markups are not rent subject to TOT assessments. The ruling was similar to earlier TOT rulings in the 2nd District appellate cases involving the city of Anaheim and the city of Santa Monica that also sought TOT assessments against the major OTCs. The Supreme Court declined to review either of those cases early last year. The San Diego decision followed the earlier rulings.
The League filed an amicus letter with the Supreme Court supporting San Diego’s petition for review of its TOT case. The League thanks Michael Colantuono with Colantuono, Highsmith & Whatley for preparing the letter on the League’s behalf. We look forward to the Supreme Court’s consideration of this important revenue and tax issue for our member cities with TOT ordinances.