CITY OF SAN ANTONIO, TEXAS, On Behalf Of Itself And All Other Similarly Situated Texas Municipalities, Plaintiff-Appellee Cross-Appellant
HOTELS.COM, L.P.; HOTWIRE, INCORPORATED; TRIP NETWORK, INCORPORATED, doing business as Cheaptickets.com; EXPEDIA, INCORPORATED; INTERNETWORK PUBLISHING CORPORATION, doing business as Lodging.Com; ORBITZ, L.L.C.; PRICELINE.COM, INCORPORATED; SITE59.COM, L.L.C.; TRAVELOCITY.COM, L.P.; TRAVELWEB, L.L.C.; TRAVELNOW.COM, INCORPORATED, Defendants-Appellants Cross-Appellees
from the United States District Court for the Western
District of Texas
BARKSDALE, DENNIS, and CLEMENT, Circuit Judges.
HAWKINS BARKSDALE, CIRCUIT JUDGE.
class action pursued by 173 Texas municipalities, primarily
at issue is whether the service fee an online travel company
(OTC) charges for facilitating a hotel reservation is
included in the "cost of occupancy", and,
therefore, subject to the municipalities' hotel occupancy
tax ordinances. The district court concluded the service fee
is included. VACATED and RENDERED.
website allows a traveler to compare the rates for airlines,
hotels, and rental-car companies, as well as request
reservations from them. Regarding the ordinances at issue,
OTCs do not own, operate, or manage hotels; instead, they
transmit information and payments between travelers and
issue reservations through a number of means to maximize
occupancy. They may issue them directly to consumers, or they
may use third-party intermediaries, such as travel agents,
tour operators, and OTCs.
facilitating hotel reservations, OTCs use the "merchant
model". Under that model, the hotel and the OTC enter
into a contract by which the OTC agrees to display
information about the hotel on the OTC's website, and the
hotel agrees to provide reservations at a discounted room
rate through that website. A hotel decides when to make
reservations available to the OTCs, how many reservations to
provide, and the room rate the hotel will charge.
the hotel can issue a reservation. When a traveler chooses to
book a room through an OTC, it requests a reservation on the
traveler's behalf. If the hotel chooses not to make a
reservation available, the OTC cannot make the reservation.
If the hotel issues the reservation, it does so in the
traveler's name, and the OTC forwards a confirmation to
made under this model are prepaid. When a traveler makes a
reservation, the OTC charges the traveler an amount that
includes the discounted room rate, a tax-recovery charge, and
a service fee. Again, the room rate is the discounted rate
negotiated for, and specified in, the OTC-hotel contract. The
OTC does not separately state this discounted room rate, but
instead combines it with part of its service fee, in order to
keep the negotiated room rate confidential from competitors.
The tax-recovery charge covers the estimated taxes the hotel
will owe on its discounted room rate.
retains its service fee as compensation for its online
services. Therefore, although the hotel determines the
discounted room rate, an OTC decides the total amount the
traveler pays when booking through the OTC's website. The
OTC later forwards the amount of the discounted room rate and
applicable taxes to the hotel, which remits the taxes to the
taxing authority. The OTC is the merchant of record in the
transaction with the traveler.
1987, the Texas legislature authorized municipalities to
"impose a tax on a person who . . . pays for the use or
possession or for the right to the use or possession of a
room that is in a hotel". Tex. Tax Code §
351.002(a). Pursuant to this enabling act, Texas
municipalities enacted hotel occupancy tax ordinances.
E.g., Dallas Code § 44-35; San Antonio Code
the ordinances, "[e]very person owning, operating,
managing, or controlling any hotel" must collect and pay
the occupancy tax to the taxing authority. Dallas Code §
44-36; San Antonio Code § 31-69(a). (Again, OTCs do not
own, operate, or manage a hotel. Therefore, the only
remaining subset is whether they "control" it.)
And, even though 173 municipalities make up the class in this
action, the ordinances use one of two common methods for
defining the tax base, as illustrated by the Dallas and San
ordinances tax "the consideration paid by the occupant
of the room to the hotel". Dallas Code § 44-35(b).
"Consideration" is defined as "the cost of a
room in a hotel", but does not include "the cost of
any food served or personal services rendered . . . not
related to cleaning and readying the room or space for
occupancy". Dallas Code § 44-34(1). San
Antonio-type ordinances tax "the consideration paid for
a sleeping room", or "the total price of a sleeping
room or sleeping facility", including "all ...