The village of Lombard will reap a $459,000 payday from the
operators of six of the biggest online travel websites – the only Illinois
municipality allowed to do so - after a federal judge signed off on a deal to
end a years-long court fight over claims the travel sites had stiffed Lombard
and other suburban Chicago communities of hotel taxes.
On Oct. 19, U.S. District Judge Matthew F. Kennelly entered
final judgment in the litigation, ordering the operators of Hotwire,
Hotels.com, Expedia, Orbitz, Priceline and Travelocity to pay the village
$459,239 to settle the west suburban village’s claims against the travel sites.
In June, Kennelly had declared Lombard to be the only one of
more than a dozen communities with a valid claim against some of the 13 online
travel sites targeted as defendants in a large legal action over the allegedly
unpaid hotel taxes.
In the case, filed in 2013, Lombard and 13 other municipalities in northern
Illinois, including Bedford Park, Warrenville, Oakbrook Terrace, Oak Lawn,
Orland Hills, Rockford, Willowbrook, Arlington Heights, Burr Ridge, Des
Plaines, Orland Park, Tinley Park and Schaumburg, asserted the travel sites do
not pay enough in hotel taxes.
Each of the communities had a hotel tax ordinance in place, requiring
hotels to pay a specified percentage of the price of each rented room in tax.
Hotels typically collect this tax by charging it to the consumer renting the
room, and then passing the collected taxes on to the village or city to which
the tax is payable. Under this model, for instance, if a city charges a 10
percent hotel tax, a consumer may pay $110 for a room listed at $100 per night.
The hotel then passes $10 to the city.
However, the municipalities alleged the travel sites
operated under a different model. Known as the “merchant model,” this way of
selling hotel rooms allows the online booking sites to pay hotels a discounted
wholesale rate for the rooms. This, a customer may pay $100 for a room through
one of the travel sites, but the room may have cost the travel site only $80.
The travel company would then pay $88 – the wholesale rate to the hotel and the
tax on that amount to the city.
The municipalities claimed the travel sites should be
required to pay the tax on the retail price of the room, not the discounted
Oakbrook Terrace voluntarily dismissed its charges. But in
June, Kennelly found largely in favor of the travel sites, saying most of the
municipalities’ ordinances don’t actually require anyone other than the hotel
owners, operators or managers to pay the municipalities’ hotel tax. The judge
said this excluded the online travel sites who “cannot be said to ‘operate’
Also, Kennelly said four of the municipalities also apply
their tax only to the rooms’ net rate, not the retail rate.
Lombard’s ordinance, however, applied the tax only to the
amount of the rental, requiring a 5 percent tax on “the charge on individual
billings” and applies to everyone involved in the business of renting hotel
This, Kennelly said, meant Lombard alone had a valid and
enforceable claim on taxes owed from the travel sites on the retail rates of
After several more months of talks, Lombard and the travel
sites agreed to the $459,000 sum to settle the claims owed through March 31,
2016, and end the litigation.
Under the deal, Hotwire Inc. agreed to pay $148,993;
Hotels.com agreed to pay $110,003; Expedia, to pay $87,330; Priceline, $73,234;
TVL LP, which was formerly known as Travelocity, to pay $20,463; and Orbitz,
The judgment did not indicate how much of the approved payments
would go to the village’s attorneys in the case.
Lombard was represented in the action by the Bird Law Group,
of Atlanta, Ga.; the Crongeyer Law Firm, of Atlanta; Peterson, Johnson &
Murray, of Chicago; the Clifford Law Offices, of Chicago; and the Finnell Firm,
of Rome, Ga.
The travel sites were represented by the firms of Jones Day,
of Chicago; Skadden Arps Slate Meagher & Flom, of Chicago; Morgan Lewis
& Bockius, of Chicago; Kelly Hart & Hallman, of Fort Worth, Texas;
DeGrand & Wolfe, of Chicago; and Freeborn & Peters, of Chicago.