The city of Chicago will not be able to collect $29 million it believed it was owed by Expedia and other online travel booking sites, after a state appeals court ruled the city’s hotel taxes can’t be applied to the fees charged by the booking services.
On April 26, a three-justice panel of the Illinois First District Appellate Court overturned the decision of Cook County judges, who had determined the booking sites had for years failed to pass on to City Hall its rightful cut of their revenues.
The decision was authored by Justice Terrence Lavin, with justices James Fitzgerald Smith and Cynthia Cobbs concurring.
“… The record clearly shows that customers pay defendants’ aptly named service and facilitation fees in exchange for a convenient manner of making reservations as well as the benefits of defendants’ prenegotiations, rather than the right to occupy hotel rooms,” the justices wrote in their opinion.
The dispute has been ongoing in state courts since 2005, when the city first filed suit in Cook County Circuit Court, asserting its city hotel tax should apply to the total price paid by hotel guests booking rooms through the online sites, rather than only the amount actually collected by the hotels themselves.
In May 2015, Cook County Circuit Judge Robert Lopez Cepero granted summary judgment to the city in the case, followed by a judgment entered in the city’s favor in October 2015 by Judge Edmund Ponce de Leon. In total, the rulings would have awarded the city more than $29 million from Expedia and other online booking services.
The online travel site operators then appealed.
On appeal, the justices said the circuit court had improperly sided with the city.
The justices said the hotel tax could not apply to the fees charged by the online travel site operators, because the booking services did not actually provide customers with hotel accommodations. Rather, the booking sites provided “prenegotiation” services, allowing the would-be hotel guests to book a room with hoteliers at negotiated rates.
Justices, for instance, said the city’s assertion its ordinance, which was enacted before the advent of online travel services, should apply to the entire bill paid by a hotel guest who books online, was “unsupportable,” as there are other fees to which the city does not now apply its tax – particularly, the city’s hotel tax itself.
“… We reject the City’s contention that the tax base under the (hotel tax) ordinance is the total amount the customer pays a defendant (online travel company,)” the justices wrote. “The City suggests that the facilitation and service fees must be in the nature of rent because they are collected at the same time as the net rate, i.e., the rent. Under that reasoning, however, the (tax) itself would be rent and therefore subject to the (tax ordinance), a circuitous result indeed.
“While the City has also stated that the (tax) itself would not constitute rent under the City’s total-amount theory, the City has not explained why its reasoning should compel us to find that one component of the total constitutes rent but the other component does not.”
The travel booking sites were represented in the action by attorneys with the firms of Sidley Austin, McDermott Will & Emery, Skadden Arps and Schopf & Weiss, all of Chicago.