It may be hard to distinguish if a recent US Court of Appeals decision is a win for taxpayers or not.
Thirteen Illinois municipalities, including Oak Lawn, and 13 travel websites battled over hotel taxes with federal judges in Chicago ruling against all 13 municipalities.
Last month, a three-judge panel of the U.S. Seventh Circuit Court of Appeals ruled online travel agencies such as Expedia are not improperly holding sales tax dollars after the village’s sued.
In July 2016, the lower court ruled in favor of the online travel agencies, including Expedia Inc., Hotels.com LP, Hotwire Inc., Egencia LLC, Trip Network Inc., Orbitz LLC, Internetwork Publishing Corp., Priceline.com Inc., Priceline.com LLC, Travelweb LLC, Travelocity.com LP, Site59.com LLC. The villages had sought a ruling that the companies were required to remit taxes on the retail price of hotel rooms they bought wholesale.
The companies use the “merchant model,” paying hotels a discounted wholesale rate for rooms. The companies then, in turn, sell those rooms to customers at a more expensive rate and make a profit.
The company pays the municipality the hotel tax based on its wholesale price and not the retail price. The municipalities, including Oak Lawn, unsuccessfully argued they should be entitled to collect tax based on the rate the customer pays to rent the room and not the lower wholesale price.
However, the villages’ own ordinances which refer to “operators” of hotels. The online companies, such as Expedia, are not the owners of the hotels.
The appellate court noted that the local ordinances do not explicitly define the concept of owning, operating or managing hotels and rooms beyond common understanding. The appellate court upheld the lower court’s decision that the wholesale contracts for rooms do not in any way position the agencies as owners or operators of the hotel businesses.
Instead, the court pointed out that the internet sites perform only one part of the hotel operations by making room reservations, processing financial transactions, and handling customer service with respect to those transactions. However, the court said that the one function does not transform them into operators of hotels.
The hotel tax, or part of it, is distributed from the municipality to the Chicago Southland Convention and Visitors Bureau for the purpose of increasing tourism and business in the various municipalities that are members. That funding comes through a contract between the municipalities and Chicago Southland.
According to its own marketing material, The Chicago Southland Convention & Visitors Bureau was founded in 1986 as a subsidiary of the Regional Economic Development Corporation (now known as the Chicago Southland Development, Inc.). In 1993, the Bureau separated from its parent organization and became an independent 501(c)6 organization. As a regional cooperative, the Chicago Southland Convention & Visitors Bureau represents 62 south and southwest municipalities, approximately 35 miles south of downtown Chicago.