Suozzi Announces Lawsuit Against Online Hotel Room

Providers Seeking Millions in Lost Tax Revenue  

Mineola, NY – Nassau County Executive Thomas R. Suozzi announced today a federal class-action lawsuit against multiple online providers of hotel rooms - including Travelocity.com, Expedia.com and Orbitz.com – that county officials say are pocketing millions in hotel tax receipts due to the county and to other local governments across the state.

 The lawsuit contends that 17 web-based companies that book hotel rooms have been pocketing hotel and motel occupancy tax revenue that is due to the County and other local governments.

“These Internet websites are ripping off taxpayers by taking money that simply does not belong to them,” said Suozzi. “They are collecting taxes on every hotel room they book but not sending the appropriate amount of tax collected to local governments, as required by law.”

Under a local law, Nassau County is entitled to collect a tax equal to three percent of the per diem rental rate for each hotel or motel room rented in the county.

The web-based companies named in the lawsuit operate by buying large blocks of hotel rooms at discounted rates, then reselling them to the public at a profit. While the sites charge and collect hotel taxes from the public based on the marked up rates, they only remit those taxes to the counties based on the lower, discounted room rate at which they secured the large blocks of rooms. These web-based hotel providers are pocketing the difference, amounting to millions in lost tax revenue to Nassau and other county governments around the state, the lawsuit charges.

For example, if a consumer pays $100 for a hotel room in Nassau County, booked through Hotels.com, the hotel tax the consumer pays is calculated on that “gross” amount of $100. Thus the amount of tax collected by Hotels.com and due to the County is three percent, or $3. However, the amount remitted to the County has been based on the lower “net” rate at which Hotels.com obtains the room, for instance $60. In this illustration, Hotels.com would only remit $1.80 (three percent of $60) instead of the $3 it actually owed the County. Hotels.com therefore, keeps a hidden and unlawfully retained profit of $1.20, thereby depriving the County of more than 40 percent of the taxes due on that transaction.

The county’s lawsuit, filed in U.S. District Court in Islip, seeks to establish a state-wide class of all New York cities, counties and other local government entities that have imposed hotel taxes and that have been shortchanged by these companies. Some 44 counties and five municipalities in New York impose hotel occupancy taxes. The lawsuit accuses the companies of fraudulently concealing the amount of taxes they were collecting and of violating the hotel tax laws while unjustly enriching themselves. Nassau County officials estimate that as much as $1 million a year may have been be lost due to the scheme.

“The Internet has made it easier for travelers to book rooms themselves and obtain discounts using various travel websites,” said Suozzi. “While we welcome visitors to the county, we don’t want to be shortchanged by the website providers who are pocketing tax receipts due local governments, which provide vital services to visitors while they are here, including transportation, parks, police, fire and other emergency services.”