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Expedia Loses Tax Protest With New York City

(CN) - New York City can collect hotel taxes from Expedia and other online room remarketers for the 2009 tax year, the state's highest court ruled.

The New York City Council had passed Local Law 43 in 2009, extending the city's hotel tax to include the full amount a customer pays the online company for a room.

Expedia, Hotwire and other companies challenged the law in court, claiming they should be taxed only for the amount they pay the hotel directly.

A New York County Supreme Court judge sided with the city, but the Appellate Division's First Department reversed the decision, declaring the tax unconstitutional.

Last week, New York's highest court, the Court of Appeals, ruled in favor of the city.

"The (state) statute authorized a broad range of taxation. Under the statute, the city may tax a 'rent or charge,' and it may collect the tax from a hotel 'owner or person entitled to be paid the rent or charge,'" Judge Jenny Rivera wrote for a five-member majority.

"Local Law 43 adheres to its enabling purpose, the taxation of hotel occupancy rent and charges by taxing everything a hotel occupant actually pays for occupancy when booking online," Rivera added.

New York City Senior Counsel Joshua Wolf oversaw the city's legal effort in this case.

"The decision further cements the city's power to draft legislation addressing technological innovations that may not have been foreseeable when an enabling statute was drafted, but which clearly fall within its original purpose," he said in a statement.

Judge Eugene Pigott partly dissented, joined by Judge Sheila Abdus-Salaam, stating that any room-price markups should be viewed as a fee for helping customers find the room, not as taxable rent.

"The payment of the fee does not constitute consideration 'for each such room,' but, rather constitutes a consideration between the operator and third-party intermediaries like plaintiffs who assist the hotel operator in bookings," Pigottt wrote.

This lawsuit affects only the money the city could collect in 2009, because one year later, the state budget specifically allowed the city's tax on room remarketers.

In 2011, Priceline, Hotwire and other room remarketers won a federal case in which Lyndhurst Township, N.J., tried to tax the full price customers paid to the remarketers.

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