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.