Online travel websites have been ordered to pay Anaheim $21 million in hotel taxes that officials say they are owed, but the companies are fighting back against the increasingly common claim that they have shortchanged cities from Los Angeles to Las Vegas.
The fight in Anaheim is the latest in an escalating debate between online travel companies and tourist-dependent cities. San Diego, for instance, alleges that it lost more than $30 million by 2006 and Los Angeles says it is losing about $10 million a year.
The travel sites, however, maintain that cities like Anaheim are trying to use old-school formulas that don't make sense in the cyber age.
Anaheim, which banks heavily on tourist dollars generated by Disneyland and the city's convention center, began legal proceedings against eight online travel companies, including Expedia, Hotels.com, Orbitz and Travelocity, in 2007, saying that the firms were not paying their fair share of the city's 15% hotel tax.
The city argued that the online reservation companies were paying taxes only on the wholesale price they arrange with the hotels, not the full retail price customers actually pay to book rooms online.
In a 55-page ruling handed down last week, an administrative hearing officer appointed by the city wrote that the online travel companies had been underpaying the city. He ordered them to pay back taxes, penalties and interest to make up the difference between the wholesale and retail rates in online transactions between 2000 and 2008.
Anaheim Mayor Curt Pringle said the city was trying to correct a practice in which web-based companies were paying lower taxes than others who book the same hotel rooms
"We're trying to make sure there's equity in our tax collections," Pringle said. "There shouldn't be a disparity between those who properly pay their taxes and those who try to avoid them."
The online companies, however, filed suit two days later, asking Orange County Superior Court to overturn the decision.
"We get to now go to court and have a completely neutral judge review these issues," said Brian Stagner, an attorney for Travelocity.
The travel companies argue that it is unfair for Anaheim and other destination cities to take decades-old ordinances aimed at hotel operators and apply them to the service fees that Internet firms charge to match guests with hotel vacancies.
