Tax issue may spur lawsuit


Clark County might sue online travel companies such as Expedia and Orbitz for unpaid room taxes that one attorney said could total $200 million to $500 million.

The agencies pay the 12 percent lodging tax on rooms they buy wholesale from hotels but not on the marked-up prices they charge customers online.

State and local officials have resisted going after them for a potentially huge sum in back taxes because they didn't want to punish businesses that bring in visitors.

But county commissioners have become open to legal action as the recession drags on and as governments throughout the nation are winning court battles against the core group of travel companies for unpaid taxes.

Commissioners will discuss on Nov. 17 whether they should hire an attorney to represent the county in a lawsuit.

"I don't know why anyone should feel uncomfortable with it," said Commissioner Chris Giunchigliani, who is bringing the issue to the board.

Online companies aren't needed to lure people to Las Vegas, she said, noting that travelers can book rooms directly with hotels.

Three years ago, two local attorneys tried to persuade the county to sue the Internet travel agents for unpaid room taxes, but county leaders passed. In August, the state tourism commission decided not to pursue the matter, saying the board lacked the authority.

Based on the current 12 percent rate, 3 cents goes to the state, 5 cents to the Las Vegas Convention and Visitors Authority, 2 cents to Clark County schools, 1 cent to transportation and 1 cent to county government.

Most local resorts oppose suing the companies for lodging taxes because they help the hotels keep an occupancy rate of more than 80 percent, said Vince Alberta, spokesman for the convention authority.

That's well above the national average of 55 percent occupancy, Alberta added.

Nevada tax law states that hotels are responsible for collecting lodging taxes when they sell the rooms and then paying the government the proper amount, said Gordon Absher, MGM Mirage spokesman.

The taxes aren't imposed directly on outside companies like Priceline, Alberta said.

State tax officials issued an opinion in 2005 that said the online companies had not acted improperly by paying no room taxes on the fees they charge patrons, Alberta said.

These agencies spend tens of millions of dollars promoting Las Vegas worldwide and should be able to recoup their costs through booking fees, said Chuck Bowling, MGM Mirage's vice president of marketing.

If the Internet companies were forced to pay more taxes, they would have less money to promote Nevada at a time when the state needs all the marketing it can get, he said.

"That's stepping over dollars to pick up pennies," Bowling said. "These companies are helping us to drive tourism ... in a way that we couldn't otherwise. We need all the faucets on."

But Commissioner Steve Sisolak said there's no way to know how much of the travel companies' fees are used to boost tourism and how much is pure profit.

"You don't know if they're buying yachts, planes and taking trips around the world," Sisolak said.

He also questioned how their actions are considered OK in Nevada if they've been found to be improper in other states.

Will Kemp, an attorney seeking to represent the county, estimates that there's $200 million to $500 million in uncollected taxes.

Kemp said the travel companies have argued in every case that they shouldn't pay room taxes because they aren't brick-and-mortar businesses like hotels.

But the Georgia Supreme Court in June found this argument lacked merit and ruled that the city of Columbus, Ga., was entitled to back taxes, Kemp said.

In February, the online travel businesses were ordered to pay $21.3 million to Anaheim, Calif. Last week, San Antonio, Texas, won a $20.6 million judgment. And on Tuesday, the state of Florida sued the companies.

If Clark County leaders decide to sue, law firms would bid on the job.

Kemp said he would suggest that Vegas.com, owned by the Greenspun family, be exempt from the room tax enforcement. The company, which also books rooms online, creates local jobs and benefits the area economy, he said.

Giunchigliani said that will be something for the commission to address.

"It's a policy decision," she said.

Contact reporter Scott Wyland at swyland@reviewjournal.com or 702-455-4519.

 

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