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Court Orders Online Travel Companies to Pay Local Sales Tax

Updated on July 31, 2015

Online Travel Companies Must Pay $60 Million in D.C. Back Taxes

The cost of booking a hotel in the District of Columbia is likely to increase as a result of a new tax ruling by the D.C. Court of Appeals.

The court said Internet-based travel companies like Orbitz, Expedia and Travelocity must pay the D.C. government $60 million in back sales taxes.

Until the appellate court ruling, the only local sales taxes on the online bookings consisted of the 14.5 percent room tax paid by the customers on their hotel bills.

The court ruled the D.C. government also can tax the money the travel companies charge their customers who book rooms through their websites.

Judge Corinne Beckwith wrote in the court’s ruling that online travel companies retail margins are a part of the sale that can be taxed.

The $60 million the six travel companies must pay date from 1998 through 2011. It is the largest tax recovery in D.C. history, according to the Office of the D.C. Attorney General.

The settlement was a huge victory for the District’s taxpayers and ensures online travel companies will have to follow the same rules as anyone else, according to D.C. Attorney General Karl Racine.

The travel companies were represented by Skadden, Arps, Slate, Meagher & From.

They argued that the hotels are the only taxable vendors under the local tax law. They also said paying back taxes would be unfair considering the city’s delay in pursuing legal action against them.

The D.C. Court of Appeals ruling said its reading of the local tax law showed it could be levied on the sale or charge for the service, rather than on the provision of the service itself.

The sale or charge includes charges by online travel companies.

Online travel booking agencies face more taxes after court ruling

Online travel agencies could be forced to pay local sales taxes after a court ruling in the District of Columbia.
Online travel agencies could be forced to pay local sales taxes after a court ruling in the District of Columbia.

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