Much like the City of Chicago’s ill-fated attempt to rake in tax dollars from online ticket resellers, an appeals court yesterday struck a similar blow to New York City’s plan to increase its revenues by taxing reseller websites.
The Appellate Division, First Department reversed a trial court decision and struck down New York’s Local Law 43, which leveled a 6 percent occupancy tax on hotel-booking websites, including Expedia, Orbitz, Priceline and Hotels.com. The court declared the law unconstitutional, saying the city overstepped its bounds in extending the tax to “online travel intermediaries.”
Local Law 43 initially was intended by the city to close what it saw as a tax loophole for the hotel sites, which purchase rooms from the hotels and then resell them to consumers at a higher rate. The websites currently pay tax on the initial room rate from the hotels, but the city doesn’t collect taxes on the difference once the room is resold.
The lawsuit, Expedia et al. v. The City of New York Department of Finance, only applies to the tax year from September 2009 to August 2010 because the New York state legislature changed its tax methodology in 2010. The change allows the city to use the state law to collect the tax instead of the controversial local law.
According to Reuters, the appeals court’s ruling may force the city to refund the taxes collected on the websites’ fees during that tax year.
Last week, the 7th Circuit upheld a lower court decision to dismiss the City of Chicago’s lawsuits against online ticket reseller StubHub! Inc. and its parent company, eBay Inc.
Chicago initially filed the lawsuits in 2008 based on a municipal law that requires ticket resellers and agents to collect and remit a tax on the difference between the ticket’s face value and the resale price. When a federal district court nixed the case in 2009, the city appealed.
The Illinois Supreme Court ruled in October that the city cannot collect taxes because only the state of Illinois has the authority to levy such a tax. Additionally, the court found that the state legislature intended for online auction listing services to not be subject to local taxes.
For more on New York’s tax troubles, read Reuters.