The biggest online hotel-room booking company in the Baltimore market has agreed to pay the city $1,675,000 to cover its tax liability dating from 2007 through June 2014.
Expedia Inc. and its sibling travel websites deny they owe the city any hotel tax but, to forestall the possibility of an adverse federal court decision, opted to settle Baltimore’s lawsuit in U.S. District Court.
The sum is more than four times the city’s first settlement in the case, which came in September when Priceline.com and its affiliates made a deal to pay $390,000 to cover the next four years.
“The basic term of this agreement is similar to Priceline, but Expedia is the biggest volume [online travel company] in Baltimore,” said City Solicitor George A. Nilson.
Nilson said only together do the two remaining defendant groups, Travelocity and Orbitz, approach the market share controlled by Expedia and co-defendants Hotels.com, Hotwire and TravelNow.com.
J. Stephen Simms, the Baltimore-based lawyer who represents all the defendants along with big-firm attorneys from around the country, declined to comment on the settlement.
The settlement, apparent validation of Nilson’s campaign to pursue “affirmative recovery litigation,” is slated for approval by the city’s spending panel on Wednesday and will surely be welcome news to the Board of Estimates, which passed the city’s lean Fiscal Year 2012 budget on Monday.
About a fifth of the recovery will go to a pair of Atlanta attorneys who litigated the case for the city, according to Nilson. Those lawyers, David Davenport and John Crongeyer, did not return calls for comment Monday.
According to a summary contained in this week’s board agenda, the remaining proceeds “will be distributed as in the case of other hotel tax proceeds” and approximately $700,000 could make it to the city coffers.
Forty percent of the Priceline settlement went to Visit Baltimore, the city’s tourism arm; 18 percent went to Davenport and Crongeyer, and the rest went to the city.
“They’ve had to work for their cut,” Nilson said of the outside lawyers. “The [online travel company’s] defenses tend to be rigorously pursued here and everywhere.”
Baltimore’s suit, which joined a national trend and started a movement in Maryland when it was filed in December 2008, claims the hotel booking companies must pay room taxes on the rates charged to customers, not on the lower rates they actually pay to the hotels for the rooms.
The defendant companies claim they are simply providing a booking service, not operating the hotel.
Baltimore County and Montgomery County, which also are represented by Davenport and Crongeyer, filed suit in May 2010 and December 2010 respectively. Those cases and the remaining portion of Baltimore’s complaint have been coordinated but not consolidated before Senior Judge Marvin J. Garbis.
In March, Garbis allowed Baltimore County’s suit to proceed, and the city cited that decision during a summary judgment hearing in its case last month. Judge Garbis has yet to rule since that hearing and has yet to make any rulings in the Montgomery County case.
Worcester County, which contains the popular beach destination of Ocean City, settled a similar suit for $150,000 a year ago. Like Baltimore, Worcester cannot sue the defendants again until 2012.
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. But others have succeeded by way of settlement or verdict.
Everywhere, the issues are “hotly contested,” according to the Board of Estimates agenda, and the result can turn on slight differences in the language of municipalities’ ordinances.
The city tax rate increased a year ago from 7.5 percent to almost 9.5 percent, with enhanced penalties, Nilson said, providing strong incentives for the defendants to settle.
He believes the companies have struck deals through 2014 to give themselves time to seek change legislatively. He expects “furious efforts” to that end. Nilson said neither Travelocity nor Orbitz has entered settlement discussions yet but that Travelocity began to make monthly payments in January.
“They didn’t say why, so again, I’m guessing,” he said.
Trial in the city case against the remaining defendants is scheduled for August, Nilson said.