Hotels.com And Other Online Travel Vendors Don't Have To Pay Occupancy Taxes To North Carolina Counties
It's hard to like the result in Wake County v. Hotels.com, LP, 2012 NCBC 61. The case is a consolidation of cases brought by several North Carolina counties (Mecklenburg, Wake, Dare, and Buncombe) against Hotels.com and other internet travel sites (like Orbitz.com, priceline.com, and travelocity.com). Hotels.com, the first named Defendant, is an online booking service that promises the lowest available rates for a multitude of hotels.
The NC County Plaintiffs allege that Hotels.com and the other Defendants contract with hotels for rooms at a discounted rate, and then sell the rooms to consumers at a higher rate. Their beef is over the non-payment by hotels.com of the Occupancy Tax ordinarily paid by hoteliers. They allege that Hotels.com and the other Defendants charge their customers for tax at the higher rate at which the hotels actually sell the room, but then only remit taxes based on the discounted rate they pay the hotel operator.
What happens to the difference? Hotels.com and the other Defendants pocket it. Shouldn't they pay the excess collected to the counties or the North Carolina Department of Revenue? The Counties thought so.
But the upshot of Judge Murphy's decision in the Wake County case is that the Counties had no cause of action against the Defendants. He granted summary judgment in favor of the Defendants.
The why of it took 30 pages of statutory analysis of North Carolina's taxation scheme. The Occupancy Tax is not contained in the General Statutes. Instead, the General Assembly passed statutes authorizing counties to levy an Occupancy Tax. The counties levy the Occupancy Tax via resolutions or ordinances.
So the cases turned on the counties' ordinances, and upon whom they placed the obligation to collect the tax. In Mecklenburg and Wake Counties, it was the "operator of a taxable establishment." In Dare and Buncombe Counties, it was the "operator of a business subject to a room occupancy tax."
Judge Murphy concluded that the Defendants were not responsible for collecting the Occupancy Tax. If you are curious about how he reached that conclusion -- and you must be a state taxation junkie if you are -- you can read about it in Paragraphs 33 through 53 of the Opinion.
Other Interesting Things About This Opinion
For those of you who aren't enamored by the Occupancy Tax, you might find interesting Judge Murphy's discussion of Rule 8 of the North Carolina Rules of Civil Procedure and his disposition of a conversion claim.
Rule 8 is titled "general rules of pleadings." It requires that a pleading 'give sufficient notice of the events or transactions which produced the claim to enable the adverse party to understand the nature of it and the basis for it . . . ." Op. Par. 58 (quoting Sutton v. Duke, 277 N.C. 94, 104, 176 S.E.2d 161, 167 (1970)).
The County Plaintiffs said that their complaints set forth a theory of liability that the Defendants had contractually undertaken to collect the Occupancy Tax and were therefore liable to pay it. Judge Murphy disagreed, stating that:
the Court can not find any allegation within the Complaints that would provide sufficient notice to Defendants that Plaintiffs' claims were based on a theory that Defendants were liable for collection of the Tax because of the contracts Defendants entered into with the hotel providers. Accordingly, the Court concludes that Plaintiffs failed to provide 'sufficient notice of the events or transactions which produced the claim to enable the adverse party to understand the nature of it and the basis for it.'
Op. Par. 60.
About The Conversion Claim
You might think that this case is tailor made for a conversion claim. As Judge Murphy observed "[w]hen a plaintiff has alleged the wrongful possession of money, courts have held that 'the general rule is hat "money may be the subject of an action for conversion only when it is capable of being identified and described."'" (quoting Variety Wholesalers, Inc. v. Salem Logistics Traffic Servs., LLC, 723 S.E.2d 744, 747 (N.C. 2012).
The thing that tripped up the counties' conversion claim was their inability to identify the funds which they said had been converted. Judge Murphy didn't buy that an allegation of a difference between the amount of Occupancy Tax taken by the Defendants and the amount remitted was a sufficient identification.
He placed an almost impossible burden on the Counties, suggesting that they point to evidence "that identifies: (1) the accounts from which the allegedly converted funds were derived, (2) the accounts to which he funds were transferred, or (3) the specific amounts that were sent and received." Op. ¶85.
There's no telling how much money the Counties contend was withheld from them -- the Opinion doesn't say -- but it's undoubtedly enough to make an appeal worthwhile.
The Fourth Circuit has weighed in on a similar dispute, in a case brought against Hotels.com and other Internet sites by Pitt County. I wrote about that way back when (in January 2009).