Is Las Vegas missing out on millions by not taxing hotel rooms sold online?


Could local government in Southern Nevada reap hundreds of millions of dollars in new tax revenues by forcing online travel companies to pay more taxes for hotel rooms they sell?

The Clark County Commission in 2009 rejected a proposal to sue the companies, such as Orbitz and Travelocity, in light of opposition from Nevada's visitor and lodging industry. But about 50 other local governments across the country have done just that, with mixed results, in hopes of capturing millions of dollars in added revenue in tight times.

While already discussed and discarded in Las Vegas, the tax plan has a new champion in political and public relations operative Sig Rogich. However, even those who want to sue the online companies consider the idea moribund in Las Vegas.

"I don't understand why the county doesn't want to pursue this tax," said attorney Will Kemp, who pushed for it in 2009. "But when you have the gaming and visitor industries against you, I just don't see it going anywhere."

Likewise, Commissioner Steve Sisolak, who expressed support for legal action at the time, concedes he has not thought about bringing it back up.

But Rogich said court victories this year by Atlanta and nearly every city in Texas, plus fresh claims filed in Washington, D.C., and Hawaii, led him to revive the idea "as an educational component."

New revenue, such as the $20.5 million in back taxes awarded in the Texas case, "would be a lot of money" when distributed to agencies such as the Clark County School District, he said. In addition, the change in collections would create fresh tax revenues going forward.

He added that he was not pursuing the subject for personal gain.

"I have no client in this deal," he said. He declined to say if he had any allies in his push.

The potential for a new revenue stream grows from what is called the merchant model: Online companies buy blocks of rooms at wholesale prices and resell them at a mark-up on their websites. The Las Vegas Convention and Visitors Authority estimates that 30 percent of the valley's hotel rooms are sold to wholesalers, including more traditional tour packagers.

Online companies nationwide pay taxes only on the wholesale room price, classifying the difference between wholesale and retail as fees and profit not subject to local lodging taxes.

In Nevada, the online companies pay the hotels an amount equal to the nightly rate plus tax, with the hotels bearing the responsibility to forward the 12 percent room tax to the state.

Overall, said authority spokesman Vince Alberta, Las Vegas hoteliers did not want to tamper with an online sales channel that has served them well.

But Dallas attorney Steven Wolens, who has led many of the cases filed elsewhere and who pushed for litigation in Las Vegas, likened hotel bookings to buying shirts at Macy's. The customer and the store pay a sales tax on full retail or marked-down prices, but never wholesale, he said.

Because the room taxes flow from differently worded local and county ordinances, the lawsuit results have also varied widely. None, however, have resulted in a windfall close to the $300 million to $500 million estimate for Las Vegas quoted by the Rogich Communications Group.

In Texas, the $20.5 million jury award, reaffirmed by a federal judge, amounted to the calculation of back taxes from the early 1990s to 2009 for almost every city except Houston. Interest and other penalties could follow later.

Wolens said this was the financial high water mark among the various cases.

The Georgia Supreme Court decided in favor of Atlanta, but said the room tax ordinance did not allow the collection of back taxes, but only future taxes.

A number of cases have settled, but Wolens said only two settlements exceeded $1 million.

Two federal appellate courts have ruled in favor of the online companies, as have other lower courts. The city of Anaheim, Calif., won in front of a hearing officer, the administrative process mandated there, but the verdict was reversed by a Los Angeles County Superior Court judge.

San Francisco moved on its own to assess the tax, about $48 million for Expedia and related brands, but the case has now shifted to the courts.

Contact reporter Tim O'Reiley at toreiley@reviewjournal.com or 702-387-5290.

 

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