Supreme Court Ends Tax War, Says Cities Must Pay Litigation Costs to Hotels.com

Municipalities that waged an all-out war against travel-booking websites over occupancy taxes are now left with a hefty litigation bill.

(Image by Rodrigo Salomón Cañas from Pixabay via Courthouse News)

WASHINGTON (CN) — The Supreme Court affirmed a more that $2 million court costs bill Thursday against municipalities that had accused Hotels.com and other travel booking agencies of shortchanging them on occupancy taxes.

Justice Samuel Alito penned the unanimous opinion, weighing in on the suit San Antonio and more than 170 other Texas municipalities opened in 2006. The cities complained that their revenues were suffering because the likes of Hotels.com, Expedia and Priceline were paying hotel-occupancy taxes based on wholesale rates they struck with operators while still collecting the full freight from end consumers.

That lawsuit resulted in a $20.5 million jury verdict for the municipalities in 2009 and, by the time the final judgment was entered in 2016, additional penalties and interest brought the total award to $84.1 million. 

But victory was short lived. After the Fifth Circuit reversed a year later, those municipalities wound up with a $2 million bill for the court costs that online travel booking companies had faced. San Antonio asked the federal court to refuse or reduce the bill, but the court said it lacked the power to alter bond costs. The Fifth Circuit affirmed, creating a circuit split that the Supreme Court agreed to settle in January.

Alito affirmed Thursday in a blow to the municipalities.

“The lower courts were correct to hold that the District Court lacked the authority to entertain San Antonio’s broad, equitable arguments,” his 14-page opinion states, explaining that the procedural rule San Antonio cited in its arguments does not allow district courts to deny or reduce the taxation of appellate “costs.”

“Read properly, [the rule] gives discretion over the allocation of appellate costs to the courts of appeals. With that settled, it is easy to see why district courts cannot exercise a second layer of discretion,” Alito wrote.

“In short,” the opinion continues, “the court of appeals’ determination that a party is ‘entitled’ to costs would mean little if, as San Antonio believes, the district court could take a second look at the equities.”

Alito also noted that a court of appeals can always direct a district court to allocate appellate costs according to the rule if it thinks the lower court would be better suited to do so. He said Thursday’s opinion should not be read “to cast doubt on” this practice.

Attorney Daniel Geyser of Alexander Dubose & Jefferson spoke on behalf of San Antonio at oral arguments in April. His counterpart, David Salmons of Morgan Lewis spoke for Hotels.com. Neither has immediately returned a request for comment.

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