Indiana

Is Indy Sitting on Untapped Millions?

By Abdul Hakim-Shabazz

As the city of  Indianapolis looks deals with budget shortfalls,  a few million dollars could be just a couple of clicks away.  A number of municipalities have filed suit against on-line hotel booking companies for failure to pay the correct amount of taxes and have come up successful.

For example, in November of last year a federal jury awarded the city of San Antonio and 172 other Texas cities more than $20 million in a verdict against Expedia, Orbitz and Travelocity and eight other on-line booking companies.

The crux of the lawsuit was that when the on-line companies would book hotels, they would charge customers a sales tax rate based on the retail price of the hotel, but only remit taxes to the city at the wholesale price.  The companies would argue the mark up was a service fee, and therefore they were not obligated to pay the higher tax to the city of San Antonio. A jury didn’t buy it.

And it’s not Texas where this is happening.  The on-line travel companies were also ordered to pay Anaheim, California $21 million in back taxes.  Columbus, Georgia recently reached a settlement.  However the California case is still pending after a judge rolled back the initial ruling.

And here in Indiana the State Department of Revenue sued several on-line hotel booking companies for more than $2 million in loss revenue.    The state won an administrative hearing, but the matter is on appeal at the Tax Court level.   A spokesman for the Attorney General’s Office says Indiana’s  litigation would not prohibit municipalities from pursuing their own lawsuits.

Indianapolis makes quite a bit of money on the convention business and raises quite a bit of revenue from hotel/motel taxes.   If there is money to be found because the on-line booking agencies haven’t been good actors then the city should definitely look into pursuing that litigation.  Such dollars could go a long way to funding the Capital Improvement Board as well as the Convention and Visitors Bureau.

Full post as published by Indiana Barrister on September 27, 2010 (boomark / email).