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City settles its suit with Priceline.com

Baltimore City has reached a $390,000 settlement of its hotel occupancy tax lawsuit against Priceline.com Inc. and two related e-booking companies.

The deal, approved by the Board of Estimates last Wednesday, covers Priceline’s past tax liability, going back at least three years, and estimated future tax liability through September 2014. Forty percent of the payment will go to the city’s tourism arm, known as the Baltimore Area Convention and Visitors Association until last year when it became Visit Baltimore, 18 percent is the city’s outside counsel’s contingency fee and the rest goes into the city’s coffers.

The other two firms involved in the settlement are Lowestfare.com LLC and Travelweb LLC.

The city, which is still litigating similar claims against three other groups of companies, is the second Maryland jurisdiction to come to terms with Priceline.

Worcester County, which contains the popular beach destination of Ocean City, settled its suit against Priceline and several other e-booking firms for an undisclosed amount two months ago. Baltimore County was the last local jurisdiction to file such a suit in May, and that case is still in the early stages of litigation.

The municipalities have claimed that the defendant firms should pay the same tax on hotel rooms they book as the hotels on whose behalf they solicit reservations.

In an interview Friday, Baltimore’s city solicitor called the partial settlement “modest in amount” but said it compares favorably with others around the country and emphasized the city’s case continues against the Orbitz, Travelocity and Expedia defendants.

“We wouldn’t have recommended it to the Board of Estimates if we weren’t pleased enough with it,” George A. Nilson said, referring to his law department’s request for approval of the settlement.

Nilson said his office and the Atlanta lawyers who have brought such suits against e-booking firms on behalf of municipalities nationwide will now focus on the remaining three defendant groups. Expedia has the largest market share, which correlates with its tax liability, followed by Priceline, then the others, according to Nilson.

“Our hope and expectation is that we will reach similar settlements with them in the next month or so,” Nilson said. “If we don’t settle with everybody, we have a summary judgment motion virtually ready to go. …”

The city and the defendant companies could be back at it again in three years when the Priceline agreement — and potentially others — expires.

Priceline representatives, including their lawyers in the litigation before Senior U.S. District Judge Marvin J. Garbis, did not respond to messages Friday. Lawyers for Baltimore County and Worcester County also could not be reached Friday.

Nilson has said that even if the old city ordinance doesn’t cover e-booking firms, a September 2007 amendment “made it absolutely clear that Internet booking transactions are covered.”

According to the city’s December 2008 lawsuit, that section of the city code defines taxable “owners or operators” as “any person … receiving any consideration for the rental of a hotel room for sleeping accommodations, including, without limitation, any broker, service provider, or other intermediary with which a hotel has contracted to arrange for the rental of a hotel room. …”

As part of the city’s recent revenue-raising measures, the tax rate has gone from 7.5 percent to almost 9.5 percent, with enhanced penalties, Nilson said, providing strong incentives for the defendants to settle.

When Worcester County’s case settled in late July, one of its outside counsel said the defendants’ payout represented “a significant portion of the damages” allegedly owed — Worcester’s hotel occupancy tax rate is 4 percent — but that that case “was much smaller than the Baltimore one.”

Nilson has pointed out that the jurisdictions ordinances are quite different.

Nationally, the defendant companies have succeeded in dismissing many municipalities’ cases, including a victory in North Carolina that was affirmed at the 4th U.S. Circuit Court of Appeals early last year.

But a class action on behalf of a group of Texas cities won a $20.6 million verdict against the hotel booking firms in October 2009 and, days before the Worcester County settlement, an Atlanta judge decided the e-booking companies must begin to pay the 7 percent local tax there. Other cases are still pending.

“I don’t think either side has won the national litigation yet,” Nilson said. “Different courts, different ordinances. The explanation for the different results is often that simple.”

Then there’s battle in the legislative branches of the federal and state governments.

“These Internet booking firms are running around to various legislative bodies at the federal level, at Congress, and I think they’re doing something in Annapolis, thinking that they might get a legislative solution to this problem sometime in the next several years,” Nilson said.