NEW ORLEANS –The city of San Antonio has asked the U.S. 5th Circuit Court of Appeals to reconsider its decision to overturn an $84 million verdict in the city’s dispute with online travel companies over Texas' hotel-occupancy tax ordinances.
In its appeal, the city argues the court overlooked the city’s tax ordinance.
The $84 million class action award was won by 173 Texas cities that had filed lawsuits against online travel companies, including Hotels.com, Cheaptickets.com, Priceline.com, Expedia and Orbits, alleging that they failed to pay hotel occupancy taxes.
The initial 2009 verdict was for $20 million, but with added penalties and interest, it had grown to $84 million.
The lawsuit stems from San Antonio v. Hotels.com, which was filed more than a decade ago in the Western District of Texas federal court. As the lead plaintiff in the class action suit, San Antonio, was in line to collect the largest piece of the pie.
In Texas, cities depend upon hotel occupancy tax revenue to fund economic development in the communities. The Texas Legislature has given cities a green light to spend local hotel occupancy tax revenue only to promote tourism and the convention and hotel industry. It also limits those expenditures to projects authorized by state statute.
Over time, the law has evolved to allow cities to use the hotel occupancy taxes for more specific community needs.
Two years after it was filed, the case was certified as a class action. However, two cities withdrew. Houston opted to pursue a case in a Texas state court in an effort to recover the unpaid occupancy taxes.
The remaining cities sought damages as they argued that an online travel company should be required to collect hotel occupancy taxes.
In its November 2017 opinion, the appeals court had maintained that the taxes were already included in the reduced hotel rates that the companies charged consumers to give to the hotels.
The panel’s rationale was that the court maintained diversity jurisdiction and therefore was bound to follow the decisions of intermediate state courts, unless there is convincing evidence that the Supreme Court of Texas would decide differently.
Moreover, the court wasn’t persuaded by the city’s claim that the companies were keeping or underpaying the taxes.
In the ruling, the court noted that the cities acknowledged the companies had been collecting the taxes on the discounted room rates and the hotels had been paying them.
“Because the only monetary amounts at issue in this class action are those not included in the scope of the hotel occupancy tax base [the] (online travel companies) are not liable,” the court concluded.
The Texas Municipal League filed an amici curiae to support San Antonio’s request for a rehearing en banc Jan. 12.
In its filing, the TML maintained that the Houston Court of Appeals’ analysis of the Houston hotel occupancy tax ordinance is an improper measuring stick for the 173 cities involved in the current lawsuit.
“This is true because the Houston court expressly and repeatedly based its decision on the limited summary judgment evidence before it as compared to the extensive evidentiary record and jury verdict in the current case,” the motion stated.