San Francisco Ordinance Does Not Impose Tax on Service Fees Charged by Online Travel Companies

Under the plain language of the San Francisco ordinance that imposes a California local transient occupancy tax of 6% of the rent charged by the operator on transients for occupying a hotel, online travel companies (OTCs) had no tax liability. An appellate court held that the San Francisco ordinance does not impose a tax on the service fees and markups charged by the OTCs. The tax is imposed on the rent charged by the hotel operator, and the tax obligations are only imposed on transients and hotel operators. The ordinance does not include a provision that imposes a tax liability on any entity other than the hotel operator or the transient. The city argued that the taxable amount is the total amount shown on the guest receipt, which includes the OTC’s markup as part of the total charged to the transient. The court disagreed and found that the ordinance contains language that limits the taxable rent to the amount charged for the room occupancy. Additionally, the ordinance includes a list of items included in the definition of “rent” and the list does not include OTC service fees. In an opinion following a rehearing of the case, the appellate court held that the language of the ordinance does not reveal the intent to impose a tax on the service fees and markups charged by the OTCs.(In re Transient Occupancy Tax Cases, Court of Appeal of California, Second District, No. B243800, March 5, 2014; In re Transient Occupancy Tax Cases, Court of Appeal of California, Second District, No. B243800, March 27, 2014)

Posted on April 7, 2014