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Karl A. Racine
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District Obtains $60 Million Contingent Settlement in Litigation against Online Travel Companies Over Back Hotel Taxes

Monday, February 24, 2014

Ted Gest, Public Information Officer
[email protected]

WASHINGTON, D.C. – District of Columbia Attorney General Irvin B. Nathan announced today that his office has reached a contingent settlement under which six major online travel companies will pay the District a total of $60.9 million plus interest for hotel-room taxes on rooms booked online if the D.C. Court of Appeals affirms a Superior Court ruling in the District’s favor.  If the District sustains its win on appeal, this monetary recovery would be the city’s largest through a case it litigated.
Under one settlement with Expedia, Hotels.com, Hotwire, Orbitz, and Travelocity, and a separate agreement with Priceline.com, payments by the six companies would total $60.9 million, plus additional interest, in stipulated judgments based on rulings by D.C. Superior Court Judge Craig Iscoe that established tax liability extending back over a decade.

The case was filed in 2011 by the District’s Office of the Attorney General, which alleged that the online travel companies were selling D.C. hotel rooms at retail prices, but were remitting hotel room taxes based on substantially lower wholesale prices that they paid to D.C. hotels.  The District asked the Superior Court to declare that each company “is required by District law to collect and remit sales taxes based on the retail prices that the [company] charges website customers for hotel rooms in the District of Columbia.” Judge Iscoe issued a summary judgment order on September 24, 2012, ruling that the District is entitled to receive hotel room taxes based on the online travel companies’ retail prices, rather than the hotels’ wholesale prices.  Subsequent proceedings in the case established the amounts of tax liability for the past decade.
The stipulated judgments end the proceedings in D.C. Superior Court.  To pursue an appeal, the online travel companies must each either post a bond to cover the liability amount in the stipulated judgment, or pay the judgment and receive a refund if they succeed in overturning Judge Iscoe’s decision. The District intends to ask the appeals court for expedited handling of the case.

Mayor Vincent C. Gray said, "A favorable resolution of this case would ensure that the online travel companies pay the full amount of taxes they owe the District based on retail room prices. Our citizens deserve no less."

Attorney General Nathan said,  “This case sends the message that the District will vigorously enforce its tax laws and that all corporations, no matter their size or industry, have to  pay their fair share of taxes.  I am pleased that the trial court proceedings have been favorably concluded and that this settlement will spare the District time and expense of litigating the damages issues at the Superior Court. I look forward to defending on appeal the trial judge’s determination that the online travel companies owe the District back taxes for these hotel room sales.”

The Attorney General commended the trial team attorneys, including Public Advocacy Section Chief Bennett Rushkoff and Assistant Attorney Generals Jimmy Rock and Andrew Costinett, supervised by Public Interest Division Deputy Attorney General Ellen Efros. “These attorneys did a tremendous job on behalf of the District to bring this matter to a prompt and successful conclusion at the trial level in the face of skilled opposition from heavily resourced national law firms that have prevailed in similar cases in other jurisdictions,” Nathan said.