Westchester County is set to move forward with a class-action lawsuit that accuses travel-booking websites of collecting hotel taxes, then underpaying the fair share to local governments.
Websites such as Hotels.com and Travelocity contract rooms at a discounted rate, then mark up the rooms for resale. Nassau County filed suit in 2011 saying the sites charged and collected taxes based on the marked-up room rates, then paid local governments taxes based on the discounted rates, pocketing the difference. The websites say the retail rate includes a surcharge and that taxing the difference would constitute a new tax on hotels.
The suit was granted class-action status in April and every municipality in the state with a hotel tax is automatically a plaintiff unless it actively opts out by Oct. 15.
Westchester charges a 3 percent tax on hotel bookings, collecting roughly $5 million a year. On Sept. 17, the county Board of Legislators”™ Budget and Appropriations subcommittee unanimously agreed to continue with the lawsuit.
Legislator Mary Jane Shimsky, a Democratic committee member, said she expected the full board to vote on the matter at its next scheduled meeting Sept. 23, after press time. “Something does not look quite right here,” she said. “This is an issue of concern to the local governments and if I were a consumer and I booked rooms under these circumstances I would be concerned as well.”
Westchester County Executive Robert P. Astorino, a Republican who has often disagreed with the board majority, had recommended staying with the lawsuit as well. The county does not have an estimate of what it might have been underpaid, said Donna Greene, a spokeswoman for the county executive. But, whether it”™s a small amount or large amount, the county does not have to pay anything in terms of legal fees to remain part of the suit.
“We have nothing to lose by staying in this but everything to gain in terms of revenue,” Greene said. “Obviously, we”™re looking to get what we”™re entitled to.” The lawsuit does not mention an amount being sought from Nassau and other governments, but with as many as 60 expected to be part of the class action it could mean millions for revenue-hungry governments across the state. One government that actively opted out is Rockland County.
Terry Grosselfinger, deputy to Rockland County Executive C. Scott Vanderhoeff, said Rockland”™s 3 percent tax went into effect January 2012 and during that time the county hasn”™t seen a discrepancy.
“From what our finance people are telling us, our numbers are right on,” Grosselfinger said. “We don”™t think the Expedias of the world are having that much of an impact (in Rockland).” Although staying in the lawsuit wouldn”™t cost any money, an overburdened county staff and attorneys would have to spend time combing through records and sharing information as needed, he said.
The Nassau lawsuit is one of several dozen similar suits in the U.S. against online hotel-booking sites, the majority of which have been ruled in favor of the businesses or remain in litigation, according to a report from the Tax Foundation, a Washington, D.C.-based nonprofit tax research group. Anywhere from 5 to 25 percent of all hotel bookings come from travel site bookings, the report said.
The report did not take a favorable view on the attempts to tax the travel-booking companies. “Taxes on hotel rooms are generally little more than a way of shifting the tax burden to nonresidents (and nonvoters),” the report stated. “These city litigation efforts are attempting to extract yet more revenue from travelers, this time by taxing Internet-based travel facilitation services.”
The argument that travel-booking sites are service providers and not hotel companies, has been a common argument as to why they shouldn”™t be accountable for inclusion in the tax. New York City passed a law last decade to broaden the definition of who could be responsible to pay the hotel tax to include online companies and others involved in booking transactions, but a suit saw the law repealed in 2011 on state constitutional grounds.
In New York, governments wanting their own hotel tax must receive approval from the state Legislature. In Westchester, several cities, towns and villages charge a local 3 percent hotel tax in addition to the county”™s 3 percent.
The village of Rye Brook, a community of roughly 10,000, receives 3 percent of its entire annual revenue from taxes from the Hilton Westchester (formerly The Rye Town Hilton) and Doral Arrowwood.
Rye City projects receiving $155,000 in hotel tax revenue in 2013. New Rochelle budgeted $300,000 in hotel tax revenue this year, after receiving an estimated $289,000 in 2012. White Plains expects to collect $1.05 million during the 2013-14 fiscal year, according to its adopted budget. Several other municipalities in Westchester asked the state to approve hotel taxes this year, but the state Senate did not take a vote on the matter before the end of its session.
