Friday, June 5–Judge Rejects Motion To Dismiss Room Tax Lawsuit

BERLIN – A federal judge this week denied a motion to dismiss a civil suit filed in January by the Worcester County Commissioners against a host of internet-based travel booking companies seeking what could be millions of dollars in unpaid hotel room taxes, allowing the case to move forward.

In January, attorneys for the County Commissioners filed suit in U.S. District Court naming 14 individual defendants, all under the umbrella of four major Internet travel-booking companies including Expedia, Orbitz, Travelocity and Priceline. The complaint alleges the companies have not been paying the entire amount of hotel room taxes owed on rental transactions booked in the county, largely from Ocean City.

According to the complaint, the defendants purchase hotel rooms in the county in bulk at deeply discounted wholesale prices and pay the required room tax to Worcester only on the discounted rate. The Internet companies then turn around and sell the hotel rooms to consumers at normal retail rates and collect the required room tax during the transactions, but do not remit the taxes collected to the county, instead keeping the money as part of their profit.

In March, the defendants filed a motion to dismiss the case for failure to state a claim upon which relief may be granted. Essentially, the defendants claimed the county commissioners’ complaint was not valid because the travel-booking companies do remit room taxes to Worcester based on what they pay the motels and hotels for the rooms.

However, U.S. District Court Judge Marvin Garbis on Monday denied the defendants’ motion to dismiss the case, ruling it appears the county’s claim the defendants are not remitting the full amount of room tax based on rates they are charging their customers has validity. In short, the judge ruled it remains possible the defendants are paying only a portion of the room tax based on the deep discounted rates and not the rates they are charging to the guests.

“The essential question is whether the local occupancy tax statute reaches the amount the customer paid the defendant, or just the amount the defendant paid the hotel,” the order denying the motion to dismiss the case reads.

It continues, “It is readily apparent that Worcester County’s claim against the defendants is plausible in view of the ordinary meaning of the terms of the legislation and what appears to be a likely version of the facts.”