Alabama ~ Sales and Use Tax: Online Travel Companies Not Subject to Lodgings Taxes

The Alabama Supreme Court affirmed a trial court’s order holding that a group of online travel companies (OTCs) were not subject to Alabama state or local lodgings taxes because the OTCs were not engaged in the business of renting or furnishing hotel rooms. Specifically, the Alabama Supreme Court adopted the trial court’s order in its entirety as its opinion.

In this case, several Alabama municipalities sought a declaratory judgment that the OTCs were engaged in the business of renting rooms or furnishing accommodations to transients and were therefore subject to the lodgings tax levied by each of the municipalities. They also sought a declaration that the lodgings tax should have been imposed not only on the local hotels for the amount they charged as rent for the occupancy of their rooms, but also on the amount the OTCs charged their customers for their online services.

Initially, the trial court noted that municipalities are authorized to impose a lodgings tax, but such taxes must parallel the state levy. The trial court noted that a Department of Revenue regulation limited the lodgings tax to “persons who operate a hotel” and that the tax is imposed only on “charges for the use of rooms … by every person who is engaged in the business of renting rooms or lodgings or furnishing accommodations to transients.” The trial court also noted that the department had determined that online travel service providers were not engaged in the business of renting or furnishing hotel rooms. Therefore, they were not hotel operators and were not obligated to collect and remit the lodging tax on what they charged for their online services. The trial court said that while the opinion of the department was not binding, it was persuasive.

Ultimately, the plain language of the relevant state statute and the municipalities’ ordinances were not ambiguous and compelled the trial court to the conclusion that the OTCs were not engaged in the business of renting or furnishing any room or rooms in any hotel. The department had promulgated a rule affirming that only persons who operated a hotel were persons who rented or furnished rooms. These OTCs were not hoteliers. These OTCs did not operate a hotel in any of the cities involved in this litigation. They provided a service to the public for which they were compensated by their customers. This compensation was not subject to the lodgings tax.

The trial court noted that it was not a proper function of the courts to rewrite the law. If the Alabama Legislature intended to impose a tax on the service rendered by the OTCs, and if it intended to allow the municipalities to impose such a tax, it may do so by appropriate legislation. The trial court was convinced by the undisputed facts that current law did not allow such taxation.

In the alternative, the municipalities argued that there was a genuine issue of material fact as to whether the OTCs had any agency relationship with the hotel operators and/or with the transient guests. Although the trial court agreed that the question of agency may be a question of fact for a jury, there was no evidence before the court to support such an allegation of agency. Thus, there was not a genuine issue of material fact and the OTCs were entitled to summary judgment as a matter of law. Therefore, the trial court’s judgment in favor of the OTCs was affirmed.

City of Birmingham et al. v. Orbitz, LLC et al., Supreme Court of Alabama, No. 1100874, April 13, 2012


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