City’s tax suit revived against Net travel firms

The Georgia Supreme Court on Monday revived the city of Atlanta’s high-stakes lawsuit against online travel companies that claims the firms are illegally pocketing millions of dollars in taxes.

In a 5-2 decision, the court told a Fulton County judge to decide the heart of the strenuously contested litigation: whether the online companies are subject to the hotel and occupancy tax.

The city filed suit in 2006 against 17 Internet travel reservation companies, including Expedia, Travelocity.com, Hotels.com, Priceline.com and Orbitz.

Atlanta claims the Internet travel companies buy blocks of rooms at wholesale rates and re-sell the rooms to customers at marked-up, retail rates, pocketing the difference. But the city is getting hotel tax revenue only on the wholesale rate, not the price customers are paying, the city says.

The tax for Atlanta hotel and motel rooms is 7 percent. The city uses most of the tax revenues to boost tourism.

The online travel companies are under legal assault across Georgia —- and nationwide —- as cities and counties seek to recoup tax money they claim is rightfully theirs. A class-action lawsuit on behalf of Georgia cities against 18 online travel companies is pending in U.S. District Court in Rome.

Last September, a Muscogee County judge ruled that Expedia must remit occupancy taxes on the full room rate charged to customers. The Georgia Supreme Court is scheduled to hear Expedia’s appeal in April.

The Atlanta case is closely watched by local governments and the online travel industry. It is being litigated at a time surveys show that the Internet is used to book travel reservations more than half the time.

After Atlanta filed suit, the online travel companies contended the city rushed to court before exhausting its administrative remedies. Instead, the city should have conducted an estimate and provided written notice of how much taxes it believed the online companies owed, the companies said.

A Fulton County judge agreed, as did the Georgia Court of Appeals.

But on Monday, the state Supreme Court overturned those decisions.

The city should not be required to exhaust an administrative process without knowing if the online travel companies are subject to the hotel tax in the first place, Justice Carol Hunstein wrote for the majority.

“It’s a great victory for the city of Atlanta,” C. Neal Pope, one of the city’s lawyers, said. It starts the process of allowing Atlanta to recover the taxes it is owed, he said.

Art Sackler, head of the online travel industry’s trade group, expressed disappointment the court allowed the suit to go forward. “But we continue to remain confident that the claims ultimately will be dismissed,” he said.

Staff writer Eric Stirgus contributed to this article.