Online Travel Companies Not Liable for Hotel Accommodations Tax in Chicago

An Illinois appellate court has determined that online travel companies (OTCs) were not liable for Chicago’s hotel accommodations tax on facilitation and service fees charged to customers reserving hotel rooms through the OTCs, since the fees were not rent. For the tax years at issue in the case, a Chicago ordinance imposed a hotel accommodations tax on the “gross rental or leasing charge” made by every owner, manager, or operator of hotel accommodations. In general, rent is paid for the use of property. As a result, “gross rental or leasing charges” are sums paid by customers to use or occupy hotel rooms. The charges imposed by the OTC included the rental rate paid by the OTCs to the hotels plus the facilitation and service fees – which were not for the use of hotel rooms – imposed on the OTCs’ customers. The rate also included a tax recovery amount which represented the amount of tax that the hotels remitted to the City on the price charged the OTC for the room. Although the tax and service charges were included in the price charged, they were not separately stated on the invoices or documentation to the customers. The court reversed a lower court’s summary judgement in favor of the City of Chicago and remanded the case. The Court’s finding was based on the definition of gross rents and the determination that the service fees do not constitute gross rents. Due to this, they did not rule on whether the OTC’s were considered owners, managers or operators of hotel accommodations. Since the tax years at issue, the Chicago Hotel Accommodations Tax ordinance has been amended to define “operator” as “any person who has the right to rent or lease hotel accommodations to the public for consideration,” including “persons engaged in the business of selling or reselling to the public the right to occupy hotel accommodations, whether on-line, in person or otherwise.” In 2014, the City added to that definition “persons engaged in the business of facilitating the rental or lease of hotel accommodations for consideration, whether on-line, in person or otherwise.”(Chicago v. Expedia, Inc., Appellate Court of Illinois, First District, No. 1-15-3402, April 26, 2017)

Posted on June 5, 2017