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Attorneys for several Illinois towns are suing online travel sites claiming they should pay hotel taxes on the spread between the bulk rate they pay hotels and what consumers pay to book the rooms through the services.

By Benjamin Yount

Attorneys for several Illinois towns are suing online travel sites claiming they should pay hotel taxes on the spread between the bulk rate they pay hotels and what consumers pay to book the rooms through the services.

The suit targets sites including Expedia, Travelocity and Priceline.

“This is for the taxpayers,” said Tom Prindable, a managing partner at the Clifford Law office, which is handling the suit on behalf of a handful of Illinois cities.

“There is a gap of taxes that (the travel sites) are not paying,” Prindable says. “That’s what this lawsuit is all about, to capture the difference in taxation that is not remitted to the local governmental bodies.”

But Robin Reck, spokeswoman for the Travel Tech Association, which represent online travel sites, says, “We are paying the correct amount that we owe, and the hotel remits our payment” to the communities.

When travelers book a hotel in person, or through a hotel’s website, they pay Illinois’ combined tax of about 11 percent on the entire room rate.

But online travel sites often buy rooms in bulk, at discounted prices, and pay taxes only on that discounted amount. If Travelocity, for example, pays $50 for a $100 a night room, the site would pay the hotel $5.50 in taxes, and not $11.

Prindable filed his suit last Friday on behalf of city leaders in Rockford, Warrenville, Oakbrook Terrace, Orland Hill, and Willowbrook. Prindable said more cities are expected to jump on board with the suit.

Dominic Lanzito, the city lawyer for Oakbrook Terrace, said his local government wants money going back to the 1990s.

“This lawsuit is filed to collect the taxes that have not been paid in the past and would not be paid in the future had we not filed this lawsuit,” Lanzito said that could be worth millions of dollars.

Prindable voiced confidence in announcing the suit today. “There will be a compensation money result from this litigation,” he said. “This litigation has been successful in every state that it has been brought.”

But Reck of Travel Tech said the legal tide has been running in the other direction in states like Florida, Missouri and California.

“We have seen a dramatic increase in the number of favorable court decisions over the past year,” Reck said, citing a half-dozen cases that sided with the online travel sites over local governments. “It is a huge waste of taxpayer dollars to invest in this fruitless litigation, which, even if successful, ends up hurting tourism.”

The most recent ruling came in early March in Florida, where a state appellate court said the online travel sites “are simply conduits through which consumers can compare hotels.”

Reck said online travel sites have always made it clear that they do not own the hotels, and therefore are not responsible for the taxes.

“The misunderstanding of the business model appears to be based on efforts to expand the bed tax to the gross transaction … making it a new tax on our services.”

Top: Deal offers promoted today on travel sites Expedia, Travelocity and Priceline.

Reporter Benjamin Yount can be reached at Ben@IllinoisWatchdog.org.

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