Cases & Deals

Expedia obtains ruling overturning City of Anaheim's transient occupancy tax assessment

Clients Expedia, Inc.

On February 1, 2010, Jones Day won an important victory on behalf of its clients Expedia, Hotels.com, and Hotwire ("Expedia Entities") when the Los Angeles Superior Court overturned an administrative hearing officer ruling and held that the Expedia Entities were wrongfully assessed transient occupancy tax ("TOT") by the City of Anaheim. The City of Anaheim had issued more than $21 million in assessments against the Expedia Entities and other online travel companies ("OTCs") for alleged underpayment of TOT for a period of eight plus years, from 2001-2009. The trial on the writ of mandate took place before Los Angeles Superior Court Judge Carolyn Kuhl on October 16 and November 4, 2009. In a 31-page opinion, Judge Kuhl granted the OTCs' request for writ of mandate, denied the City's cross-motion for judgment, and confirmed that the OTCs were not obligated to collect and remit TOT.

In December 2008, a City-appointed hearing officer concluded the Expedia Entities and OTCs were liable for back TOT, penalties, and interest finding that the OTCs were "operators" and "managing agents" of the hotels for which the OTCs facilitated reservations. The hearing officer further held that the amounts the OTCs charged for their travel-related services were subject to TOT and therefore the OTCs had been underpaying transient occupancy tax for a period of eight plus years. After trial on the Expedia Entities' petition for administrative writ of mandate, Judge Kuhl concluded that the City erred in assessing the OTCs because (1) the OTCs were neither "operators" nor "managing agents" of the hotels and therefore had no obligation to collect and remit TOT; (2) the plain language of the City's ordinance indicated that the City intended to tax commercial activity within the City of Anaheim and therefore the TOT was limited to amounts charged and received by hotels, rather than amounts charged by OTCs; and (3) a taxing ordinance must be "frozen in time" -- the City's attempt to expand the plain meaning of the ordinance without voter approval was not consistent with the requirements of Proposition 218.

The victory before Judge Kuhl has significant implications for a pending class action alleging underpayment of TOT brought by the City of Los Angeles and currently part of a Judicial Council Coordinated Proceeding before Judge Kuhl. At least 49 cities throughout California are members of the putative class action alleging that the Expedia Entities owe several hundred million dollars in back taxes, penalties, and interest. Judge Kuhl's ruling will likely have a significant affect on the viability of that class action and the attempts by other cities in California to assess TOT.

The success on behalf of the Expedia Entities resulted from a combined effort of Jones Day's Trial, Issues & Appeals, and Tax practices.

Transient Occupancy Tax Cases, No. JCCP 4472 (Cal. Super. Ct., L.A. Feb. 1, 2010)

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