Breckenridge, Online Travel Companies Argue at Supreme Court

Justices zero in on whether Expedia and other companies are ‘renters’ of hotel rooms subject to the town’s tax law

Ralph L. Carr Colorado Judicial Center
The Colorado Supreme Court released its opinion in People v. Hall. / Law Week file.

In the world of e-commerce, it’s become tricky to define who does what in many transactions. It can be even trickier to nail down who must collect and remit different sales taxes, and that is the central issue between the Town of Breckenridge and more than a dozen online travel companies.


On Thursday, the Colorado Supreme Court heard oral arguments in a case where Breckenridge claims Expedia, Hotels.com and other online travel companies owe the town back taxes on hotel room bookings. Breckenridge is looking to have the court reverse the finding that the OTCs aren’t “renters or lessors” of the hotel rooms that consumers reserve through their websites. Under that reading, OTCs aren’t required to collect and remit the town’s “accommodation tax” on hotel room sales.

Breckenridge collects a 3.4% accommodation tax from anyone who “who furnishes for lease or rental” a hotel or motel room, or some other accommodation. Many local governments across the U.S. have sued OTCs for similar taxes that the companies hadn’t remitted, and with varying results.

In January 2018, the Colorado Court of Appeals affirmed a district court decision finding the companies aren’t subject to the accommodation tax under Breckenridge’s ordinance because they don’t rent or lease the hotel rooms. Rather, the defendant companies are “essentially brokers” the appellate court said.

Denver enforced a similar “lodging tax” on online travel companies, which the Colorado Supreme Court upheld in 2017. The court held that OTCs contract with hotels to sell lodging, or the right to occupy the rooms. But the Court of Appeals pointed out that Denver’s ordinance covers entities that “furnish lodging.” Breckenridge’s ordinance, the appellate court reasoned, requires the tax from entities that actually own the rooms or property being rented or leased, which Expedia and the other defendants don’t.

Breckenridge’s ordinance didn’t define renters or lessors, so the town and the OTCs have argued over what definition should apply, as they did in the Supreme Court on Thursday. The justices posed relatively few questions for either counsel, and what they did ask was mostly to get at what it means to rent, lease, or furnish a hotel room.

Breckenridge’s arguing counsel explained that when consumers book a room directly with the hotel for a given night, they pay the same price for that room as they would through Expedia or another OTC. But the amount of tax proceeds the town reaps from the OTC transaction is significantly less because the 3.4% rate is taken off the discounted rate that the OTC turns around to pay the hotel for the room, and not the full amount the consumer pays the OTC. The problem, according to Breckenridge, is that OTCs still charge consumers the 3.4% tax on the full price.

“They’re treating themselves as the taxing authority,” argued Michael Plachy, who is a partner at Lewis Roca Rothgerber Christie and is representing Breckenridge. “They’re taking tax dollars that they already collect and are putting it in their own pockets.”

Justice Richard Gabriel noted that Breckenridge wants the court to follow its decision in City and County of Denver v. Expedia Inc regarding in how the court applied Denver’s lodging tax to the OTCs. “But the language [in each ordinance] of course is different,” Gabriel said.

Plachy argued that the language in the Breckenridge law still covers OTCs. “What [it] means is that one who receives consideration, in exchange for providing another with the right to use a room must collect and remit the tax,” he said. “And one does not have to be an owner or an operator of a hotel to provide another with the right to use a hotel room, so long as they have a contractual right to provide that to the third party, and that’s what we’re dealing with here.”

Plachy said the Supreme Court held [in Denver] that the OTCs could sell hotel rooms that they don’t own. 

“I think to prevail here today, the OTCs are going to have to convince this court that although they’re able to sell hotels that they don’t own or possess, they can’t lease or rent them, because they don’t own or possess them. To us that’s illogical.”

Justice Carlos Samour pointed out that Breckenridge had actually argued in the district court that the Denver case was distinguishable. Plachy replied that “both parties have taken arguably inconsistent positions, and that’s an unfortunate part of being an advocate.”

The OTCs maintain that Denver’s ordinance is different because it covers vendors selling the rooms, whereas Breckenridge’s ordinance covers entities that possess the rooms.

“We’re not saying you have to be an owner, but you have to be in possession, to be able to transfer possession [to the consumer],” said Sean Connelly, a solo appellate attorney and former Colorado Court of Appeals judge who argued on behalf of the travel companies. “You cannot lease or rent or something you do not possess.”

In response to Justice Monica Márquez’s question about what it means to “furnish” a room in the ordinance, Connelly said it just takes on the meaning of lease or rent in the ordinance. And OTCs “don’t furnish rooms in the ordinary sense” of putting a couch or desk in the rooms, and the Breckenridge ordinance doesn’t use “furnish” that way,  he said.

“It’s used in the sense of sale, and sale essentially trumps furnish in that one ordinance,” Connelly said. “And they sell the right to occupy rooms, and that’s what we lost in [the] Denver [case]. So it’s a far jump here to say that we lease or rent rooms when leasing or renting requires possession.”

Justice Brian Boatright asked Connelly what his response was to Plachy’s argument that the OTCs are collecting the tax but retaining it. Connelly contended that they collect the “tax recovery fee” that gets passed through to the hotel, and not taxes. “This is whether the service fees should be taxed, we are not collecting taxes on our services at all.”

Connelly cited several courts across the country that sided with OTCs on the lodger’s tax question. “Denver’s a one-off. I mean, a vendor selling or furnishing rooms — it was a kind of, I submit, a tortured ordinance that we argued was ambiguous.”

He continued, “If this court were to hold that OTC are engaged in leasing or renting it would be on its own. 

Uniformly, there’s not a single case they can cite where leasing rental language was found to encompass the OTCs.”

Plachy later pushed back on the OTCs’ major premise that leasing and renting requires a possessory interest. “It requires that the person conveying that interest have the right to convey the right to use the hotel room,” he said. “They don’t have to own it, they don’t have to possess it. They simply have to have the right to convey it to their customers, which they unequivocally do.”

He also pointed to testimony from an OTC employee who said that companies look add the municipalities’ lodger’s taxes, like Breckenridge’s, to their price to make it equal to what the customer would pay the hotel directly.

“And so while they call it a service tax recovery fee, or whatever label they put on it, the reality is they’re applying the percentage of … the lodger’s tax at each locale to fix that fee,” Plachy said, adding that they’re collecting that money but not remitting it. 

Plachy alluded to Justice William Hood’s footnote in the Denver opinion, saying “the mere fact that they’re collecting this tax is an implicit recognition that they have an obligation to do so. And I think that’s precisely right.”

— Doug Chartier

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