A lawsuit the state and New Orleans have lodged against online travel agency giants Priceline, Orbitz, Expedia and Travelocity uses words like "disguise" and "camouflage" to complain about a scheme that the suit says has cost Louisiana nearly $23 million and counting in lost tax revenue since the late 1990s.
The suit, filed in Baton Rouge state court, claims the online travel agencies contract with hotels for a wholesale price on rooms but then charge consumers a higher retail price, paying taxes only on the price they pay to the hotels.
"When a hotel rents a room on its online website, it charges and collects and remits taxes based on the retail rate. When an (online travel agency) furnishes a hotel room on its website, it charges and collects taxes at or above the retail rate, but remits on a lesser wholesale rate. This is fundamentally unfair," the suit contends.
"The law requires transparent tax administration and full payment of taxes on the gross amounts," it adds.
The online travel agencies also have failed to report or pay taxes on rental car services they have provided, the suit alleges.
The state Department of Revenue and the New Orleans Department of Finance claim in the suit that they are being robbed of taxes rightfully owed them.
"Every transaction booked through an online travel company cheats the City of New Orleans out of tax money owed through no fault of the consumer," New Orleans City Attorney Rebecca Dietz said in a written statement.
"The lost revenue that would be generated by these taxes would be spent on generating even more revenue through public safety, cleanliness and economic development and visitor attraction efforts," she added.
Neither the lawsuit nor Dietz's statement indicated how much money the Crescent City is seeking from the online travel firms.
The suit claims the state is owed about $22.8 million -- which includes interest and penalties -- by Priceline, Travelocity, Orbitz, Expedia and their affiliates, including Hotels.com, Hotwire.com, Lowestfare.com and Travelscape LLC.
Spokespersons for Expedia and Travelocity declined comment on the suit. Spokespersons for Priceline and Orbitz did not respond to requests for comment.
The state Revenue Department, through a spokesman, also declined to elaborate on the suit's allegations.
Philip Hackney, an LSU law professor who specializes in tax law, said the lawsuit is a first of its kind in Louisiana but that dozens of such suits have been filed around the country.
"By and large, online travel companies are winning," he said last week.
Hackney, who said the issue hasn't reached the U.S. Supreme Court, suspects that a legislative solution ultimately will resolve the dispute.
The state, according to the suit, sent data demand letters to the online travel agencies in mid-2010 informing them that they failed to report and remit taxes. The state also provided the firms with schedules in early 2011 of estimated sales and use taxes due at that time.
The online travel agencies replied to the state in 2011 that they "are not subject to the Louisiana general sales/use tax" and none of the entities "are registered for or have any filing responsibility with respect to" that tax, the suit alleges.
The lawsuit by the state and city asks state District Judge Wilson Fields to declare that the online travel agencies are legally required to collect such taxes on the gross amount paid by hotel guests who obtain rooms and rental cars through the agencies, and that the agencies are required to send those taxes to the state.
"Tax dollars that should be flowing to the state are being diverted into (the online travel agencies') coffers," the suit charges.
Taxing authorities around the country have repeatedly assessed or audited the online travel agencies, the suit says, but the agencies "have always denied legal liability and asserted constitutional defenses, and often try to tie up the matters in the administrative process for years."
The city of New Orleans also named Destination Management Inc. of New Orleans as a defendant. The state is not suing that agency.