HomeMy WebLinkAbout201-18 RESOLUTIONarC
113 West Mountain Street
Fayetteville, AR 72701
(479)575-8323
Resolution: 201-18
File Number: 2018-0470
LETTER OF AGREEMENT:
A RESOLUTION TO AUTHORIZE THE MAYOR TO SIGN A LETTER OF AGREEMENT WITH
THRASH LAW FIRM, WILLIAMS & ANDERSON PLC, THE FINNELL FIRM, AND BIRD LAW
GROUP TO FILE A CLAIM ON BEHALF OF THE CITY OF FAYETTEVILLE FOR UNPAID
HOTEL/MOTEL/RESTAURANT TAXES OWED BY ONLINE TRAVEL COMPANIES
WHEREAS, a judgment has been entered in the case of Pine Bluff Advertising & Promotion
Commission, et al, v. Hotels.com, et al, against several online travel companies for failure to remit
hotel/motel/restaurant taxes to local taxing authorities in Arkansas, including the City of Fayetteville; and
WHEREAS, the Circuit Court of Jefferson County, Arkansas granted class action status to the lawsuit
in 2011 and Thrash Law Firm and Williams & Anderson PLC of Little Rock, and The Finnell Firm
and Bird Law Group of Georgia were appointed as counsel representing all potential class members; and
WHEREAS, attorney fees and costs will not be paid by the City directly but, if approved by the Court, will
be paid out of the total sum recovered from the defendant travel companies; and
WHEREAS, the case is currently on appeal but the City should be prepared to expeditiously file a claim
when and if the judgment is affirmed by the Arkansas Supreme Court.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF
FAYETTEVILLE, ARKANSAS:
Section 1: That the City Council of the City of Fayetteville, Arkansas hereby authorizes Mayor Jordan
to sign the Letter of Agreement, a copy of which is attached to this Resolution, with Thrash Law Firm,
Williams & Anderson PLC, The Finnell Firm, and Bird Law Group to file a claim on behalf of the City
of Fayetteville in the matter of Pine Bluff Advertising and Promotion Commission, et al, v. Hotels.com,
et al, Jefferson County Circuit Court Case No. CV -2009-946, for unpaid hotel/motel/restaurant taxes owed
by online travel companies.
Page 1 Printed on 9124118
Resolution: 201-18
File Number 2018-0470
PASSED and APPROVED on 9/18/2018
Approved: Attest:
,t
eld ;ord.an, r Sondra E. Smith, City Clerk Tre
N%�lY�)irrr►►►
41814 kit
Page 2 Printed on 9124118
City of Fayetteville, Arkansas
r
• I
�- Text File
File Number: 2018-0470
Agenda Date: 9/18/2018 Version: 1
In Control: City Council Meeting
Agenda Number: A. 12
LETTER OF AGREEMENT:
113 West Mountain Street
Fayetteville, AR 72701
(479)575-8323
Status: Passed
File Type: Resolution
A RESOLUTION TO AUTHORIZE THE MAYOR TO SIGN A LETTER OF AGREEMENT WITH
THRASH LAW FIRM, WILLIAMS & ANDERSON PLC, THE FINNELL FIRM, AND BIRD LAW
GROUP TO FILE A CLAIM ON BEHALF OF THE CITY OF FAYETTEVILLE FOR UNPAID
HOTEL/MOTEL/RESTAURANT TAXES OWED BY ONLINE TRAVEL COMPANIES
WHEREAS, a judgment has been entered in the case of Pine Bluff Advertising & Promotion Commission, et
al, v. Hotels.com, et al, against several online travel companies for failure to remit hotel/motel/restaurant taxes
to local taxing authorities in Arkansas, including the City of Fayetteville; and
WHEREAS, the Circuit Court of Jefferson County, Arkansas granted class action status to the lawsuit in 2011
and Thrash Law Firm and Williams & Anderson PLC of Little Rock, and The Finnell Firm and Bird Law
Group of Georgia were appointed as counsel representing all potential class members; and
WHEREAS, attorney fees and costs will not be paid by the City directly but, if approved by the Court, will be
paid out of the total sum recovered from the defendant travel companies; and
WHEREAS, the case is currently on appeal but the City should be prepared to expeditiously file a claim when
and if the judgment is affirmed by the Arkansas Supreme Court. /
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF
FAYETTEVILLE, ARKANSAS:
Section 1: That the City Council of the City of Fayetteville, Arkansas hereby authorizes Mayor Jordan to sign
the Letter of Agreement, a copy of which is attached to this Resolution, with Thrash Law Firm, Williams &
Anderson PLC, The Finnell Firm, and Bird Law Group to file a claim on behalf of the City of Fayetteville in the
matter of Pine Bluff Advertising and Promotion Commission, et al, v. Hotels.com, et al, Jefferson County
Circuit Court Case No. CV -2009-946, for unpaid hotel/motel/restaurant taxes owed by online travel
companies.
City of Fayetteville, Arkansas Page 1 Printed on 9/25/2018
Blake Pennington
City of Fayetteville Staff Review Form
2018-0470
Legistar File ID
9/18/2018
City Council Meeting Date - Agenda Item Only
N/A for Non -Agenda Item
8/27/2018
Submitted By Submitted Date Division / Department
Action Recommendation:
Mayor's signature on engagement letter with Thrash Law Firm, Williams & Anderson PLC, The Finnell Firm, andBird
Law Group so the City of Fayetteville may file a claim for unpaid HMR taxes in the case of Pine Bluff A&P
Commission; et al v. Hotels.com, et al.
Account Number
Project Number
Budgeted Item? NA
Does item have a cost? No
Budget Adjustment Attached? NA
Purchase Order Number:
Change Order Number:
Original Contract Number:
Comments:
Budget Impact:
Fund
Project Title
Current Budget $
Funds Obligated $
Current Balance
i.
Item Cost
Budget Adjustment
Remaining Budget
Previous Ordinance or Resolution #
Approval Date:
V20180321
ICA
OFFICE OF THE
Ci'ry ATTORNEY
DEPARTMENTAL CORRESPONDENCE
TO: Mayor Jordan
City Council
FROM: Blake Pennington, Assistant City
DATE: August 27, 2018
Attorney
Kit Williams
City Attorney
Blake Pennington
Assistant City Attorney
Rhonda Lynch
Paralegal
RE: Outside Counsel Engagement Letter — Pine Bluff A&P Commission, et al v.
Hotels.com, et al — Unpaid Hotel, Motel & Restaurant Taxes
In 2009, a lawsuit was commenced on behalf of the Pine Bluff A&P Commission and Jefferson
County over unpaid HMR taxes that were collected by online travel companies for several
years but never remitted to the local tax authorities. The City of North Little Rock joined the
lawsuit in 2011 and the suit was granted class-action status in 2013. A final judgment, a copy
of which is attached, was entered against the travel companies earlier this spring.
Because it is a class action lawsuit, other similarly situated cities, counties, and A&P
commissions will be able to file claims to recover unpaid taxes from the defendants in this
case. The case is currently on appeal but, if the judgment is upheld, the attorneys appointed by
the court to represent the class want to be in a position to quickly file claims on behalf of the
class members.
The attorneys for the class include Thrash Law Firm and Williams & Anderson PLC of Little
Rock, and The Finnell Firm and Bird Law Group which are Georgia law firms. § 31.45(E) of
the City Code requires City Council approval to hire outside counsel.
This requires no up -front payment by the City but the attorneys representing the class will be
entitled to fees and costs on the back end by awarding a portion of the total sum recovered
from the defendants. This will reduce the amount paid to the class members but this is standard
in class action cases. The final award of attorney fees and costs must be approved by the court.
Our office recommends hiring these firms to file a claim to recover any unpaid taxes to which
we are entitled. If authorized, the City of Fayetteville will join the lawsuit alongside the
Fayetteville A&P Commission, the Fort Smith A&P Commission and the City of Magnolia.
Several local taxing authorities are expected to join the case. Once the claim filing period has
passed, the Court will oversee a process in which the defendant travel companies will have to
turn over their records showing what taxes were collected but never remitted to the class
members. This is a potential significant benefit with low risk to the City.
THRASH LAW FIRM, P.A.
1101 Garland Street
Little Rock, AR 72201
Thomas P. Thrash
tomthras i r i raslilamirii-tn a.com•
Mayor Lioneld Jordan
c/o Kit Williams
City of Fayetteville
113 W Mountain Street, Suite 302
Fayetteville, AR 72701
Dear Mayor Jordan;
Telephone: 501-374-1058
Facsimile: 501-374-2222
August 27, 2018
Re: Pine BluffA&P Commission, et al t), lllotels.com, et al
Intervention and Claim
Please allow this letter to confirm your request that we represent the interest of the City of
Fayetteville, as an Intervenor and a Claimant in the above referenced case. Your execution and
approval of this Letter of Agreement will, epresent out• authority to proceed with your intervention
and claim in the above-described litigation.
You will not be responsible for any attorneys' fees or expenses. We will advance all
expenses and deduct the expenses from any recovery in this case. Any award of legal fees and
expenses will be determined and approved by the Court and will be paid from the overall recovery in
this case. The attorneys representing the Plaintiffs and Intervenors in this case include: Thrash Law
Firm, PA, 1101 Garland Street, Little Rock,. Arkansas 72201; Williams & Anderson PLC, 11:1
Center Street, Suite 22.00, Little Rock, AR 72201; The Finnell Firm, PO Box 63, Rome, GA 30162-
0063; and Bird Law Group, P.C.,, 2170 Defoor Hills Road NW, Atlanta, GA 30318.
If this accurately represents our agreement, please acknowledge your approval by your
signature below.
S e,
Thomas P. Thrash
APPROVI,D ANDER I D TO:
NKyot Li one
City of Fayet
Cities, others urged to file tax Claims I NWADG http://www.nwaonline.com/news/2018/may/20/cities-others-urged-to-file...
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Cities, others urged to file tax claims
Court in Jefferson County finds 12 online travel firms liable for unremitted taxes
By �dI N, 1 -6o!
Pm*d hBy 2Q 2011) al l a m
a
Online travel companies owe millions of dollars in Arkansas taxes that they collected over the past
23 years, said Thomas P. Thrash, a Little Rock attorney.
Jefferson County Circuit Judge Robert H, Wyatt Jr, ruled Monday that t jotals.corn and 11 other
online travel companies are liable for the back taxes, and he's giving potential plaintiffs four months
to intervene in the lawsuit and make a claim for damages.
ADVERil6ANo
SPONSORED BY CONNATIX
"It is like a bird nest on the ground," Thrash said, "The liability has been determined: The slate,
cities, counties and A&P commissions just need to file their claim and get paid"
The lawsuit was filed in 2009. The initial plaintiffs were the Pine Bluff Advertising and Promotion
Commission and Jefferson County. North Little Rock was added as a plaintiff in 2011.
The case was granted class-action status in 2013, but taxing entities must file a motion to intervene
in the lawsuit and make a claim for damages before they can collect any money.
Thrash said there are more than 40 advertising and promotion commissions In the state, and the
lawsuit would likely affect all 75 counties.
"Any city with a Holiday Inn or other chain -- Comfort Inn, Motet 6, etc, -- would have online
bookings.' he said, "Most all counties would be included,"
But Mike Maloney, executive director of the City Advertising and Promotion Commission in Eureka
Springs, said calculating lost revenue over 23 years -- or a fraction thereof — could be quite a
chore.
"We have so many lodging properties — 130, 135, t don't knowwhat the exact number is," Maloney
said. '"To go back 23 years and pull whatever documentation out is going to be an issue..._ It would
be a huge amount of money"
Claude Legris, president of the Arkansas Association of Convention and Visitors Bureaus, agreed.
"I venture tt will be extremely dificull to do the look -back on it," said Legris, who is also executive
director of the Fort Smith Advertising and Promotions Commission. "it could be quite a daunting
task for the individual destinations."
Thrash said the Cities, counties, and advertising and promotion commissions don't have to do that
legwork
'They do not have to do anything to determine their damages,' he said. "They just have to claim
they ci dn`t receive taxes from the online travel companies. The court has ordered the online travel
companies to provide the damage data within 30 days after [the taxing entities] make a claim"
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Cities, others urged to file tax claims I NWADG
They just have to make a general claim, Thrash said.
http://www, nwaoii l in e.coin/news/2018/in ay/20/c ities-others-urged-to-file,.,
Wyatt had informed the parties of his decision in a Feb_ 1 letter. His official order was nled Monday,
giving potential plaintiffs four months to intervene and existing plaintiffs 30 days to petition for
"supplemental relief of damages,"
Thrash said he believes the damages can be calculated back to 1995.
To explain how the tax revenue was diverted, Thrash said Ifotets.com might sell a hotel room
through its website for $100 but it agreed to pay the hotel company $50 for that room. The
consumer pays the appropriate Arkansas taxes on the $100 room, and half of the collected taxes
go to the hotel company along with $50 for the room. The hotel company then remits the taxes on
the $50 ii received for the room.
But.Holrrfs.sam hasn't been paying the taxes on the $50 it made on that room, even though it
collected taxes on that $50 from the consumer, Thrash said.
In essence, he said, the online booking companies have kept tax revenue that belongs to
Arkansas, cities, counties, and advertising and promotion commissions.
'They're saying they don'treally sell the room, they just facilitate the room," Thrash said.
According to Wyatt's opinion filed Monday, under Arkansas law, the travel companies"Pees" are
also part of the tax base because Ihey are "necessary to complete the sale."
"The jonline travel companies) admitted business practice of bundling their fees with the net rate
price of the room and in the'taxes and fees' line item is improper and conceals the true tax amount
from the customer and the taxing authority," according to the court firing, "This practice alone
renders the OTCs liable for the taxes on the total amount collected from the customer, as
exemptions or deductions from the taxable amount are only glVen for items that are separately
stated,"
Paul Gehring, assistant revenue commissioner for the Arkansas Department of Finance and
Administration, said they were stili reviewing the court documents Tuesday. The state has yet to
intervene in the case, initially taking the view that the online travel companies weren't "subject to
gross receipts and tourism tax levied on the service of furnishing rooms to transient guests,"
according to an April 18, 2017, opinion letter from the department.
"We have not yet made any decision as to further steps that may be taken," Gehring said. "When
there's a ruling in a court case, we take a very close look at what the ruling says before we make a
decision going forward."
Jeffrey A Rossman, a Chicago attorney representing Foiels.mm, Hotwire and Expedia, didn't
return a voice mail message Tuesday.
The Pine Bluff Advertising and Promotion Commission imposes a 3 percent tax an gross receipts
from the rental of accommodations, according to the suit Jefferson County and North Little Rock
each impose a 1 percent tax.
Arkansas also has a 6.5 percent safes tax and a 2 percent hotel tax, according to the National
Conference of State Legislatures.
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IN THE CIRCUt"I'COURT OF
JEFFERSON COUNTY, ARKANSAS
PINE BLUFF ADVERTISING AND
PROMOTION COMMISSION',
JEFFERSON COUNTY, ARKANSAS,
AND ALL OTHERS SIMILARLY
SITUATED,
Plaintiffs,
V.
HOTELS.COM, LT.-, HOTWIRE, INC,;
TRIP NETWORK, INC.
(d/b/a CH EAPTICKETS COM);
TRAVELPORT LIMITED; EXPEDIA,
INC.; INTERNETWORK PUBLISHING
CORP, (f-b(b/a LODGING,COM);
LOWESTFARE.COM FNCORPOR-ATED;
ORBITZ, LLC.; PRICELINE.COM
INCORPORATED;
TRAVELOCITY,COM L,P.;
TRAVELWEB LLC, AND SITE59.COM,
LLC,
Defendants.
Case No. CV -2009-946-5
MAY 14 2018
LAFAY�TTE WOODS, SR.
Q
JEFFER89MAIAMi ARKANSAS
MEMORANDUM OPINION IN SUPPORT OF ORDER ON CROSS-MOTIONS FOR
SUMMARY JUDGMENT
This Court, having considered all briefing and oral argument on the Parties' Cross -Motions
for Summary Judgment, hereby DENIES Defendants' Motion for Surnmary Jud
gment, GRANTS
Plaintiffs" Motion for Summar), Judgment, and issues this memorandum opinion in support
thereof.
1. Procedural Posture
Plaintiffs Pine 13hiff Advertising and Proinotion Commission and Jefferson County, on
behalf of themselves and others similarly situated, filed this deeltratorvjLid,-i-iieiitaction against
the Onlinc Travel Companies (or "OTCs") on September 25.2009. The OTCs subsequently moved
to dismiss Plaintiffs' =action based on alleged want of subject matter jurisdiction, which this Court
denied on January 3, 2011. Thereafter, on April 22. 2011 , Plaintiff City of North Little Rock filed
a Complaint in Intervention on behalf of itself and other similarly situated Arkansas cities.
Plaintiffs moved for class certification on December 5, 2011. Following a hearing on
November 19, 2012, this Court granted Plaintiffs' Motion for Class Certification on February 19,
2013. Upon the OTCs' appeal of that Order, the Supreme Court of Arkansas affirmed this Court's
grant of class certification on October 10, 2013. See flolels.cwn, LY, v. Pine .Vver.
Bluf,f&
Promotion Coinm'n, 2013 Ark. 392 (2013).
In its Order granting class certification, this Court certified two classes. Class A is
comprised of "fall[ Advertising and Promotion Commissions, of Arkansas Cities, including the
Pine Bluff Advertising and Promotion Commission that have or have had tax ordinances pursuant
to Ark. Code Ann, § 26-75-602(a)(c)(1), since 1995." (Feb. 19, 2013 Order granting Class
Certification at 20.) Class A includes.the Pine Bluff Advertising and Promotion (Vininission and
all other Arkansas city advertising and promotion commissions created pursuant to the Advertising
and Promotion Commission Act, Ark. Code Ann, § 26-75-601, et seq., that are to receive taxes
upon "[t]he gross receipts or gross proceeds fforn renting, leasing, or otherwise furnishing hotel,,
inotel, house, cabin, bed and break-flast, campground, condoininiuni, or other similar rental
accommodations for sleeping, meeting, or party room facilities for profit in such city —i" ("the
A&P Tax") (Feb. 19, 2013 Order granting Class Certification at 20); Ark. Code Ann. § 26-75-
602(c)(1).
Class B is comprised of "[a]ll counties and cities in the State of Arkansas that have or have
had ordinances that provide for a tax on the gross receipts frorn the sale at retail within the county
or city- of all items which are subject to the Arkansas Gross Receipts Tax Act (Ark. Code Ann. §
26-52-301), since 1995." (Feb, 19, 2013 Ordergantino Class Certil-Ication at 20.) Class B includes
Jeffcrson County, the City of North Little Rock, and all other Arkansas cotintiEs and cities that
2
have enacted ordinances pursuant to the Arkansas Gross Receipts Act of 1911, Ark. Code. Ann. §
26-52-101, etseq., that impose taxes upon the "the gross proceeds or gross receipts derived from
[tile] [S]CI-Vice of furnishing roorns, suites, condominiums, townhouses, rental houses, or other
accommodations by hotels, apartment hotels, lodging houses, tourist camps. tourist courts,
property management companies, or any other provider of accorm-nodations, to transient guests..,"
("the City and County Tax'"), Ark. Code Ann. § 26-52-301(3)(Jk)(i).
11, Summary Judgment Standard
Surn-maryjudgmentis "one of the tools in a trial court's efficiency arsenal." Smith v. Rogers
Group, Inn.. 348 Ark. 241, 249 (2002), A motion for suminaryjudgment should be granted when
it is clear from the pleadings and depositions, that there are no genuine issues of material fact to be
tried. Ark. R. Civ. P. 56(c); Smith, 348 Ark. at 249. Here, all Parties agree that there are no issues
of material fact, and thus this Court has made a legal determination based an the undisputed factual
record before it, as set forth herein.
The questions before this Court are simple:
(1) Who are the taxpayers for the A&P Tax and the City and County Tax ("the Taxes")?
All Parties to this dispute agree that the taxpayers are the OTCs' customers, and thus the answer
to this question is not in contention, as further addressed below,
(2) What is the tax basis for which these taxpayers (i.e., OTC customers) are liable?
Specifically, are the customers liable for the Taxes upon the gross receipts they pay in order to
obtain the rights to accommodations (including the "fees" portion of the total charges and other
bundled portions)) As detailed below, the answer to this question is "yes". Under the undisputed
facts of this case, the Taxes are and must be based upon the gross receipts./total arnounts paid by
the taxpayers—tivithout exclusion, deduction or exemption—as no exclusion, deduction, or
exemption has been claimed nor applies, Further, no such exclusion, deduction, or exemption
3
could he upheld in light of the undisputed bundling that the OTCs use in their transactions with
the customers, 1
(3) Under the undisputed facts, including the operative contracts, and Arkansas law as
applied to the facts and circumstances at issue in this case, are the OTCs legally bound and liable
to collect and remit taxes upon the gross receipts that they charge to and receive from their
customers in order for their customers to obtain the rights to accorninodatiom in Arkansas
Oneluding, the "fees" portion of the charges and all other bundled portions)? The answer to this
question is "yes": Under the undisputed facts and law applicable to this case, the identity of the
tax collector does not and cannot change the identity of the taxpayer, nor does it or can it change
the tax basis for which that taxpayer is liable under Arkansas 1aw.2 Businesses are free to engage
or continue in business and structure their business dealings and operations largely as they see fit
within the confirtes of the law, but private contracts cannot be used to ignore, evade, or violate
state law. Arkansas law is clear and unambiguous, establishing that: (a) customers purchasing the
rights to Arkansas accommodations are liable as taxpayers; (b) customers must pay taxes on the
gross receipts they pay in retail transactions to obtain those -rights, including service fees either
necessary to obtain the rights to accommodations or . any charges that are bundled in the
transactions; and (c) tax collectors who collect taxes {regardless of the identity or label they
employ) must do so In full accordance with the law. Any person actually collecting taxes as q
inatter of fact and contract with other would-be tax Collectors must comply with the duties
I The OTCs explain and defend theirbusinesq operations including the rationale,: for their bund I ing practices, but none
of these explanations can alter the fact that Arkansas law requireA separate statements oYany supposedly non-taxable
char -es or c, Ise the Taxes are chic upon both the taxable ind supposedly non-taxable coinponents, See iijfia. pgs. 30-
3?, "Where is no dispute that the OTO, bundle the fees that they claim are non-taxable right aloes, Nvith monies that they
admit are taxable on (lie top line of their presentation of charges to the customers- The O-I"Cs further admit to bundling
taxes along with private service fees and the second line of their presentation cf charge.,, tlhtis inakinf, the Taxes
themselves taxable hider the mandate of the law, See infra Section X.
So-called �ransml - "breaka,ge -tions are also mcompas;wd within the tax basis of the Taxes. See inji-a Section V111.13,
4
Arkansas law places upon tax collectors, including but not limited to remitting any and all taxes
collected.
III. General Approach to Interpreting and Applying Arkansas Tax Statutes and
Ordinances
"The question of the correct application and interpretation of an Arkansas statute is a
question of law." Cent. Okla. Pipeline, Ine. v. Hawk Field Sens., LLC, 2012 Ark. 157, *9 (2012).
"The first rule in interpreting a statute is to construe it just as it reads by giving words their ordinary
and usually accepted meaning. Statutes relating to the same subject should be read in aharmonious
manner if possible, All statutes on the same subject are inpari wileria and must be construed
together and made to stand if capable of being reconciled.... In interpreting a Statute and attempting
to construe legislative intent, we look to the language of the statute, the subject matter, the object
to be accomplished, the purpose to be served, the remedy provided, legislative history, and other
appropriate matters that throw light on the matter." Boothe v. Booihe, 341 Ark. 381, 385 (2000).
"The basic rule of statutory construction is to give effect to the intent of the legislature."
Ford v, Keith, 338 Ark. 487, 494 (1999) (citation omitted), "Where the language of a statute is
plain and unambiguous, [the Courts] determine legislative intent from the ordinary meaning of the
language used." Id. "rhe statute should be construed so that no word is left void, superfluous, or
insignificant-, and meaning and effect must be giveffto every word in the statute if possible." Id.
See fil.so Yamaha Motor Carp, i� Richard's Honda Yamaha, 344 Ark, 44, 52 (2001). Moreover,
this Court must not give a statute a meaning that will nullify its operation if it is susceptible to
another interpretation. At the saine tirne, this Court will not enlarge, stretch, expand, or extend a
statute to matters that (10 not tall within its express provisions,
Only if this Court deten-nines the language of a statute is ambiguous will it proceed to the
next step, which involves applying general principles of statutory construction to the language of
tl)estatute; tee Ct)IlStrLicany aiiibiguotisl,,in�,qiaoetoacct)ratcIY reflect the intent of the legislature. If
I
5
this Court determines that the language of the statute is not ambiguous, there, is no room for further
Construction. It will apply the language of the statute using its ordinary and usually accepted
meaning. A statute is ambiguous where it is open to two or more constructions, or where it is of
such obscure or doubtful mcanin that reasonable minds rnight disagree or be uncertain as to its
9 z:1
meaning,, See Yamaha Motor Coo p., 344 Ark. at 52. In this case, the Taxes are not ambiguous and
can be applied frorn the plain statutory language and stated purpose,
IV. Arkansas" Local Taxation Scheme Relating to Accommodations
Before determining the scope of the Taxes, the Court first reviews the statutory sclicine
and the corresponding regulatory rules. It is clear from the plain language of the statute as well as
relevant precedent that the Taxes are in fact sales taxes. See Ark. Code Ann. § 26-52-301; Cook v.
Sears -1 oebtick & Co., 212 Ark. Mg, 315 (1947) ("We have repeatedly held that the present Gross
Receipts Tax Act is a sales tax act."). This point. is particularly relevant because much of the OTCs'
briefim, misunderstands the nature of the Taxes at issue. These Taxes are not net income taxes
imposed directly upon a certain category of business such as motel, imposed for being in business
,is a motel. Instead, the Taxes are sales taxes that eff6ctively tax the transactions themselves and
the custorners in those transactions for the full value of those transactions, without deduction for
services or other integral amounts, See Wininan v. Phillips, 191 Ark. 63, 73-74 (1935) (discussing
that, under a retail sales tax, the merchant must collect and account for the tax its the tax collector,
and the tax is required of the purchaser [the custorncr]).s
Thou2h both sides to this dispute cite numerous out-of-state cases. the Court decides this ease by directly applying
the Plain language of the Arkansas '.Faxes to the voluminous but undisputed factual record before it. Having said illat.
the Court notes that many of the cases cited by the OTCs are either factually dititingui.'-',hable because they were decided
ups ll motions to dismiss, or they are legally distinguisfi-4)ble for a variety of reasons such as: (a) the taxes at issue were
not "saies uIxes", (h) the taxes were not directly on the customem (C) the taxes Gvere not upon the " Yross income" and
"total aillowns" without deduction: and'or (d) the taxes did not legally require iternization. In thit reprd, some ofthe
out -of -mate authority cited by Plaintiffs- involving sales tax statutes and taxes upon the customers fior "retail pores"
are more licrsuaiive and analogous to the law and factual record before this Court, such as the sales tax schemes it
iS"ItW ill file \vV(Alliilg SUPNrne Court and Montana Supreme Court decisions and the decision pertaining to
findings ofliability against (lie OTCs, despite the advancenientofmany
of the O'I'C,,;,' same arguments here.
6
In enacting the Advertising and Promotion Commission Act, Ark, Code Ann. § 26-75-601,
el seq., the Legislature crafted a simple, straightforward law with the clear and express intent of
taxing the full amount a custorner pays in exchange for hotel accommodations, without deduction
for the seller's markups, costs, services, or fees. The Advertising and Promotion Commission Act
authorizes the City of Pine Bluff and others similarly situated (Class A members) to levy a tax on:
The gross receipts or gross proceeds from renting, leasing, or other;vise
furnishing hotel, motel, house, cabin, bed and breakfast, campground,
condominium, or other similar rental accommodations for sleeping,,
meeting, or party room facilitiesfo rprofit in such city or town, but such
accommodations shall not include the rental or lease of such
accommodations forperiods of thirty (30) days or more....
Ark. Code Ann, §§ 26-75-602(a) and (c)(1) (emphasis added). The Act further authorizes Class A
members to create their own advertising and promotion commissions to collect (or to appoint an
agent to collect) the A&P Tax from ",the persons, firms, and corporations liable therefor." Ark,
Code Ann. § 26-75-603(a). See generally Ark, Code Ann. §§ 26 -75 -603(b) -(c), -605. In creating
the A&P Tax, the Legislature elected to model it upon the Arkansas Gross Receipts Act of 1941.
Indeed, the A&P Tax specifically invokes the Gross Receipts Act's provisions regarding rules,
regulations. assessment procedures, enforcement, and collection, and provides that these
provisions are applicable to the Hotel Tax "so far as practicable." See Ark. Code Ann.
§ 26-75-603(b)(1) ("The rules, regulations, forins of notice, assessment procedures, and the
enforcement and collection of the tax tinder the Arkansas Gross Receipts Act of 1941, § 26-52-
101 et seq. and the Arkansas Tax Procedure Act., § 26-18-101 et seq., so far as practicable shall be
applicable with respect to the enforcement and collection of the [A&P Taxj-). Moreover, the
Legislature provided that liable taxpayers shall pay the AQP Tax to the advertising and promotion
commission "in the same manner and at the same time as the tax levied by the Arkansas Gross
IZeceipts Act of 194 1. § 26-52-101 et seq." Ark. Code Ann, § 26 -?5-603(a),
7
Although the Advertising and Promotion Commission Act does not itself define the terms
"lease" or "rent," the Arkansas Gross Receipts Act of 1941 (hereinafter "Gross Receipts Act")
does. Ark, Code Ann, § 26-52-103,(15) defines "lease" or -rental" as "any transfer of possession,
or control of tangible personal property for a fixed or indeterminate term for consideration."
Further. although neither the Advertising and Promotion Commission Act nor the Gross Receipts
Act specifically define "furnish" or "furnishing," and these terms do not appear to be specifically
defined elsewhere in the Arkansas. Code, the plain, ordinary, and common usage- of "furnish"
means "to provide or supply," See, e,g, Ballentine's La", Dictionary (3d ed. 2010) (defining
"Furnish" as "To supply, provide, equip, or fit out,") (accessible online through
https:I/advancc.[exis,com,); Aferriam- Ifebster Online, littl,).q://wvvw.mem'ani-webster.com/
dictionary/furnish (visited Aug. 4, 2017) (defining "furnish" as inter (ilia to "supply, give
Canibrielgc Dictionary Online, bttp://dictionary.cambridge-org/us/dictionar)`/englisli/ftiniish
(visited Aug. 4. 2017) (defining "furnish" as inter alien to "to supply or provide something
Under the plain, statutory language of the Advertising and Promotion Commission Act, the
breadth of the tax basis is clear. The definitions set forth within the Gross Receipts Act provide:
"Gross receipts", "gross proceeds", or "sales price" means the total amount
of consideration, including cash, credit, propery, and services, for which
tangible personal property or services are sold, leased, or rented, valued in
�n
inoney, whether received in money or otherwise, without tiny deductionfir
the following,
' The stalwory definitions of"Icase" and "rental'* accord with the prevailing dictionary definitions of those terms.
See, e -o- Blacks Ltiw Dictionmy (10th ed. 2014) (defining "lease.' as, "[a] contract by which a d0htful possessor of
real property conveys the right to use and occupy the property in exchange for consideratim. usLi, rent," and defining
"rcntal" zs "the amount received as rent") (accessible online through
Dictio;iw-i! cd, 2010) (defining "lease" as "[a] contract for the possession and profitts aflands and tenements on
ilie nine side. and a recompense (if rem or other income on the outer" anti defining "rental" as -[a) charge made by way
of mat-) (accessible online through I)ttp,;:,"/advaiiee.lexis.coni), Online, lit tps:/!' �,+Av w . rnern a m-
tvet�ster.cotiif'dictionary=le-,ise (visited Aule. 4.2017) (defining Icas-c- as "a contract by, which one conveys real estate,
equip.ment, or rimlities, for a specificd ten -n and for i specified Onljnelitlps://www.tnerrittnr
webstrr,coan,'dietianury=`rental (visited Aug. 4, 2017) (defining "rental" a,,.,"sornelhing that is rented").
8
(i) The sellers cost of the property sold;
(ii) The cost of materials used, labor or service cost, interest, any
loss, any cost of transportation to the seller, any tax imposed on the
seller, and any other expense of the seller;
(iii) Any charge Ar the sellerfor any service necessa)y to complete
the sale...
Ark. Code Ann. § 26-52-103(13)(A) (emphasis added). -5
Together, the City of North Little Rock, Jefferson County, and all other similarly situated
cities and counties (the Class B Members) have, adopted the Gross Receipts Tax or the City and
County Tax, Just like the A&P Tax, the Gross Receipts Act is a simple, straightforward law with
the clear and express intent of taxing the full amount derived from all sales to any person from the
service of tarnishing hotel rooms to transient guests, again without deduction for the seller's
markups, costs, services, or fees. See Ark. Code Ann: § 26-52-301(3)(A)(1). Ark. Code Ann.
§ 26-75-502(a) authorizes the City of North Little Rock and other cities similarly situated to levy
a tax "on gross proceeds or gross receipts derived from sales, as such sales and gross proceeds or
gross receipts are defined in the Arkansas Gross Receipts Act of 1941, § 26-52-101 et seq...."
Similarly, the Arkansas Code authorizes Jefferson County and other counties similarly situated to
levy a tax upon the gross receipts froth the sale of all items that are subject to the Gross Receipts
Act. Sou Ark. Code Ann. § 26-74-309(d)(2)(A) ("[C]ountywide tax shall be levied ... on the gross
receipts from the sale at retail within the county of all items and services that are subject to the
Arkansas Gross Receipts A Ark. Code Ann. § 26-74-404(d)(2)(A) ("[Tlhere shall be levied
3 ']'his statutory defillltiOTI Of "UrOSS receipts" set forth within the Gross Receipts Act accords with the prevailing
dictionary definitions of "gross reeeiPtS" and Law Diciionan(101h ed. 2014) (defitilap
"Gross receipts" as "The Iota] amount of money or other consideration received by a biisincss taxpayer for goods sold
or services perf*omied in a taxable ytar. before deductioas.") (accessible online through haps:i I ncxt.wesflaw.com)*
Balleiaine's Law Dictionw-111 (3d ed. 2010) (defining "Gross reccipts" as "The entire. earnings of a business without
deduction; the total as opposed to the not. For the ptjrpose of a sales tax: -- the proceeds of sales of Personal property
Without deduc(in ri on account of cost of the property or any other expense ,vhatsoe�,er." Void defining -Gross pToceeds"
as "f -he entire procetxfis. The proceeds of a sale or of a collection without deduction for Cost, commissions, or any
0111er expellse's whatsoever.") (accessible online through littps:/i"',Id�-ance.lexis-corii): Afowrianl- If"ebster Online..
(visited Aug. 4. 2017) ('Iepal Definition ol'Gross
Receipts: the total amount of Value in money or other consideration received by taxpayer in .9 givel) period for goods
Sold orservice,�
... [a] tax on the gross receipts from the sale of all itCT11S that are subject to the Arkansas Gross
Receipts Act...."). &,e also Ark. Code Ann, §§ 14-20-112(a)(1)(A)(i), (b)(1) (authorizing a county
tax "upon the gross receipts from ftiri3ishing of hotel or motel accommodations" in counties that
contain a qualifying municipality.... [T]he tax so levied shall be paid by the persons, firms, and
corporations liable therefor and shall be collected by the levying county in the same manner and
at the same time as the gross receipts tax levied by the Arkansas Gross Receipts Act...."),
In enacting the Gross Receipts Tax, the Legislature chose to impose a broad tax
upon the gross proceeds orgross receipts to akyperson 1from thel IxIervire
of ftirnishing rooms, suites, condothiniurns, townhouses, rental houses, or
other accommodations by hotels, apartment hotels, lodging houses, tourist
camps, tourist courts, property management companies, or atky other
provider of accomin odathins to transient guests.
Ark. Code Ann. § 26-52-301(3)(A)(1) (emphasis added). Per the Gross Receipts Act, the teen
",sale" includes the "[e]xcliange; barter, lease, or rental of tangible personal property." Ark. Code
Ann, § 26-52-103(19)(B)(i). As previously discussed,, in crafting the Gross Receipts Tax, the
Legislature chose to define the terns "WDss receipts" and "gross proceeds" broadly and
encompasses the "total amount of consideration ... including ... services ... without any deduction
for ... [a]ny charge by the seller for any service necessary to complete the sale." Ark. Code Ann,
§ 26-52-103(13)(A).
Further Supporting this COUJIS construction and analysis of the statutory scheme, the
Arkansas Tax Rules provide, that "gross receipts or gross proceeds is synonymous with 'sales
price' and means the total aniount of consideTatiI , g credit, including cash, C� - it, property, and services,
for which tangible personal property or set -vices ,ire sold, leased, or rented, valued in money,
whether received in money or otherwise." GR -31, The Arkansas Tax RuIcs also state that "any
charge by the seller for any service necessary to complete the sale. other then clel.lve-y
I charge or
an installation cilargo'c" is included within the tax basis. GR -3. Accord 7'r(treIo6rjI*.coj)j, 1.1-, j?. g,�O,
10
De])V qfRevenue, 2014 WY 43, *P53 (2014) ("[G]uests cannot obtain a hotel room through an
OTC using the merchant model without paying the price they set, and therefore all charges for
services are `charges by the seller for any services necessary to complete the sale,' which are not
deductible frorn the taxable 'sales price."'); Disirict of Colunibia v. Expedia, 2012 D,C. Super.
LEXIS 14, *25 (Septembet-24, 2012 order); D-avelscape, LLC v, AS C Dept of Revenue, 391 S.C.
89, 33 (2011),
Neither the A&P Tax nor the City and County Tax discuss taxes on 'net" receipts or
proceeds. Yet, the OTCs have asked this Court to convert the "gross" taxes at issue into "net" or
LI wholesale" rate taxes, which it cannot and will not do. Further, there is no express or implied
exemption that applies to the OTCs' customers, who are the taxpayers. See inf;-a Section X.
V. The Taxpayers Who Are Taxed
One of the first steps in applying or interpreting any taxation scheme is to determine the
identity of the taxpayer. Both sides acknowledged the fundamental nature of this "who" question
in their briefing and at oral argument, As Plaintiffs' counsel pointed out during oral argument, and
as the OTCs admitted in their briefing, the taxpayers here are the OTCs' customers. Thus, these
Taxes are properly viewed born the perspective of the taxpayers or OTCs' customers. Notably,
1101 a single taxpaying customer has intervened, objected, or challenged the fact that lie/she owes
taxes when paying the OTCs for the right to accommodations in Arkansas. Additionally, not a
single taxpaying customer has intervened, objected, or argued in favor of a tax exclusion or
deduction from the fees they pay to OTCs to secure the rights to Arkansas accommodations.
V1. The Tax Basis of the Taxes
The tax basis -for these Taxes is broad. The law clearly provides that the gross receipts 01'
gross procceds iron the sale of the -service of furnishing rooms or the rental, leasing, or otherwise
fitimishin.44 of rooms are taxed. The terin "gross" is all encornpassing, and means without any
deduction under both its plain nicaning and Ark. Code Ann. § 26-52-103(13)(A), which provides
in pertinent part'.
"Gross receipts', 'gross proceeds', or 'sales price' means the total amount
of consideration, including cash credit, property, and services, for which
tangible personal property or services are sold, leased or rented. valued in
money, whether received in money or otherwise, without any deduction for
the following:... (Ili) Any charge by, the seller for any service necessary to
complete the sale, other than a delivery charge or an installation chargp.
The history of the application of the Taxes over time is also important in determining
whether and how they apply to the transactions at issue in this case. As. Plaintiffs' counsel
articulated at oral argument, there is no dispute that the Taxes apply to customers of brick -and -
mortar hotels and travel agencies. Like the OTCs, -brick -and -mortar hotels and travel agencies both
spend money on marketing, website development, customer service, and other services that make
it possible for them to advertise and provide their services to customers via the internet. As the
OTCs set forth in their briefing, they too ",invest significant.financial. resources to accumulate and
display the content on their websites," which are the same categories of services,
The OTCs' arguments hinge upon the supposedly unique nature of their business model
and the effectiveness of their so-called ",facilitation" services. But these argurnents arc largely
rhetorical and gloss over or distract from the larger legal points at issue. Arkansas lawsets forth
an even playing field in [lie realm of the Taxes (as well as the other privilege and excises taxes). It
is not and %vas not the stated goal of the Legislature to reward supposedly more innovative or
"better" busincsses, with tax amnesty and relatively punish supposedly "worse?' or less
technological businesses with full Taxes, Instead, Arkansas must have a taxation scheme that is
clear, tair, and tninsparent—which it does, The Legislature stated its purpose to raise revenues
froill customers to support important governmental functions and, in so doing a
, to avoid disparate
and unequal treatment. The OTCs' interpretation of the law is stilled and would directly contravene
the Legislature's stated purpose, as well as the many other provisions of the law. All Customers
12
purchasing the rights to accommodations from "all providers" shall pay' 'axes on the gross receipts
and total amounts they pay—including "services," "without any deduction," and including "all
amounts necessary to complete the sale" and any other bundled arnounts (even if not otherwise
taxable). To require tax on the gross rate for brick -and -mortar providers of accommodations but
some lower amount when the advertising or promotion of such transaction is done by an outside
source, as the OTCs argue, would be nonsensical and thwart the Legislature's intent to achieve
equal tax application,
The OTCs' arguments do not and cannot reconcile the historic and ongoing application to
taxpaying customers who use hotels and travel agencies to book Arkansas hotel rooms and who
directly pay those tax collectors the fbll sales amount, including Taxes on the full amount, without
any deduction for the services the brick -and -mortar hotel or travel agency has provided (including
advertising, marketing, payment processing, and customer service). As further explained later in
the Court's memorandum, there is no logical or legal reason for these Taxes to apply any
differently to the customers of OTCs versus customers of brick -and -mortar hotels and travel
agencies who choose to "facilitate" their own room reservations, For example, when a customer
books a hotel room through Starwood -corn (a brick -and -mortar location) or American Express
Travel (a travel agency), it is undisputed that taxes are owed on the entire amount of the
transaction. The OTCs would have this Court find that when the same booking is done instead
through Hotelscom or Expedia,corn, the entire amount of the transaction is no longer subject to
taxation.
It is not the place or the expertise of taxing authorities nor this Court to determine that
4-1
Hotels -corn is a more innovative business than
han Starwood or American Express Travel.
Undoubtedly, American Express Travel could easily make many of the saine claims being made
Here b the OTCs: "American Express Travel invests] �igilifjcaot financial y fill licial resources to
13
accurnulate and display the content can fits] website." And, American Express Travel could go
further and discuss ]low it uses innovative technology and cutting edge security, maintains
customer information, allows for shopping and comparisons across brands of hotels, allows
package bookings, displays content, and perforins a host of other functions, just like the OTCs
claim. But, where is the deduction under the law for their customers paying for all of those services
as part of their bookings? As recognized by the Wyoming Supreme Court, travel agent bookings
are fully taxed, and no deductions are provided for their services. See infra Section VIII, III this
case, Plaintiffs have made that same point, and there is no dispute by the OTCs that travel agent
sen,ices should not be deducted as a matter of fact or practice. In fact, the O'T'Cs thernselves
conduct some transactions as agency bookings (when customers click "pay later",), and in those
bookings full taxes are paid without deduction for the OTCs' services, But, if a customer clicks
"pay now," that decision results in the booking becoming a "merchant" booking from which the
OTCs will not remit any taxes upon, the money they keep fiom the transaction. The significance
of the"paynow" or "pay later" decision was discussed by Plaintiffs' counsel at Oral argument:
And what's interesting is if you go to their website and you go through the
booking path — that we submitted as evidence in this case, a guest can
search for comparative shopping ... which hotel they want, compare rates.
look at all those things and then pet all the way to the end of the process,
look at every picture, read every review, do all, the things they call
facilitation that Ltheyj think is nontaxable; but at the, end, if they click the
button that says pay later, pay at the hotel, then what happens ... Is, it is
turned into an agency transaction.... The hotel is involved with them on one
style of the transaction, and it's fully taxable. But if that guest in the last
click decided, no I want to pay now ... All of a sudden, that becornes a
merchant model booking, because they're handling the money ... they take
their $20 off 111C top, on the front. They pass on the $80, and then all of a
Sudden, only S80 is the subjective tax remittance.
(See Motion for Summary Judgment Hearing, January 31, 2018, Tr, at 116-117.) As counsel
contioued and pointed Out, there is 110 provision in Arkansas law that provides if the hotel collects
all the Inoney and then pays a corninission Out to a third party afterward (agency model) that the
14
total amount collected is taxable, but if some of the fee is taken out beforehand (OTC merchant
model transaction) then only the I essscr amount remitted to the hotel is taxable. The identity or label
of the entity that collects the money from the customer does not change the tax basis. Here, the tax
is on the customer and on the gross arnount the custorner pays for the reservation, without
deduction,
The 01 -Cs argue that the }Faxes must be strictly construed against the taxing.authority. This
would only be correct if the Court determined the Taxes were ambiguous, which they are not. As
there is no ambiguity to strictly construe against the taxing authority, this Court will apply and
enforce the Taxes based on the plain statutory language.
The Plaintiffs also argue for strict construction, truction, but not regarding an ambiguity. Instead,
Plaintiffs assert that the OTCs seek what aMOLLI)tS to an exemption from the Taxes, which should
be strictly construed against the OTCs. Under Arkansas law, a taxpayer must "establish facts to
support a claim for a tax exemption, tax deduction, or tax credit [by] clear and convincing
evidence." Ark. Code Ann. § ?8-1 g-' 13. "Furthennore, there is a. presumption in favor of the
taxing power of the state, and all tax -exemption provisions must be strictly construed against the
exemption. Taxation is the rule, and exemption is the exception." Holbrook v. Healtlq)orl, 2014
Ark, 146, *1 tl-11, It is clear that each of the transactions at issue in this case is taxable because, in
exchange for monetary consideration, the OTCs provide their customers with the .right to occupy
a hotel room. The Court believes the OTCs are, in addition to other arguments, seeking an
exemption from taxation for their "fees." Whether or not the OTCs are, seeking an exemption, it is
clear that they have not niet their burden for any such exemption or deduction to apply,
15
VI 1. Arkansas Department of Finance and Administration ("DMA") Letter and Leathers
v, Active Realty
The OTCs argue that, to find in their favor, the Court need only consider the DF&A
Opinion Letter dated April 19, 241', or in the alternative, the Arkansas Supreme Court decision
in Lealhers i� Activu Ricalt.v, 317 Ark. 214 (1994), The Court does not find either to be dispositive
or persuasive in this ease.
First, the April 19.,2017 Opinion Letter issued by the DF&A is clearly incorrect because it
is based on incomplete facts and inapplicable law. The record developed in this case is far superior
to the "scenario" upon which the DF&A based its, Opinion Letter. Indeed, even when asked at oral
argument, the OTCs' counsel could not tell the Court who requested this Opinion Letter, nor could
they provide the Court with the factual inquiry underlying the Opinion Letter. Further. during oral
argument, the OTCs' counsel assured the Court the request for the Opinion Letter did not come
from any of the Defendant OTCs. Taking into account all of these factors, the Court cannot rely
on an Opinion Letter that is the result of an anonyrnous inquiry and does not substantively
appreciate or address the realities of the OTCs' business practices, as clearly reflected in the
voluminous record before this Court. Further, the Court need not base its ruling on a hypothetical
factual scenario when, instead, it can base its decision on the voluminous, fully developed factual
record properly before the Court. Furthern-iore, the Opinion Letter bases its conclusion on a case
that has subsequently been abrogated by statutory changes which the Letter fully failed to address.
Finally, the Letter failed to address the specific definition of "gross receipts" in Ark, Code Ann, §
26-52-103(19)(A).' As Such, the Court finds that the Opinion Letter is clearly wrong acid, as such,
would be an improper basis for this Court's analysis,
"I houo I I the Opinion Letter cites to block qUOIeS frond the updated Aa-tute. the remainder of the I eltel fails to analyze
or even mention the 1995, %niendnient, ignoring not only the changes td the plain language but also the or
these Changes,
16
Second, Leathers v. Active Realtv is not pet -suasive or dispositive because the Arkansas
Supreme Court decided that case in 1994 under a previous version of the Arkansas Gross Receipts
Tax that is not at issue in this case. Plaintiffs' claims only involve the Taxes after the 1995
amendirient. In Leathers, the Court detennined that the 1994 version of the Gross Receipts 'Fax
did not impose tax liability on a business that managed rental houses and townhouses, as the tax
only applied to those businesses that were specifically listed in the statute, i.e,, hotels, apartment
homes, lodging houses, and tourist camps or courts. Leathers, '317 Ark. at -116. However, in 1995,
at its earliest opportunity following the Lewhers decision, the legislature amended the Gross
Receipts Tax to ensure that the tax applied to all entities that furnish accommodations of any type
to transient guests by adding the phrase, "or any other provider of accommodations to transient
guests." Ark. Code Ann. § 26-52-30)(3)(A). Accordingly, the current statutory language at issue
in this case is much broader than that in Leathers, thus rendering that case inapplicable to the
current controversy.
Indeed, the Court need not guess what the intent of the legislature was in amending the
statute in 1995 as the emergency clause of the bill expressly lays out the Legislature's intent:
It is hereby found and determined by the General Assembly that recent court
decisions resulted In disparate treatment by requiring hotels., motels and
lodging houses furnishing lodging to transient guests to collect sales tax on
Such lodging while property management companies which provide similar
,entices are not taxed; that this act is necessary to specify that these
Provisions of law apply to all entities which furnish accommodations of any
type to transient guests and is designed to correct the current unequal
treatment. Therefore, an emergency is declared to exist and this act being
necessary for the preservation of the public peace, health and safety shall be
in full force and effect from and after July 1, 1905.
1995 Ark. I -IB 1199. § (). The Legislature clearly desired to prevent disparate treah-nent beh.veen
entities furnishing hotel rooms and lodgging to transient guests, To find that the reasoning in
Leathers' namely that the cijunjerated entities in the statute, as amended., do not encompass the
OTCs, would be in direct contradictioll to the Plain language of the amended statute and also
17
contrary to the express intent of the Legislature in the wake of Leathers, In fact, per the expansive
legislative amendment, the OTCs plainly fall within the entities enumerated in the statute as
amended as they are plainly "provider[s] of accommodations to transient guest[sj,"
Furtherniore, even if the Legislature had not amended the statute with an express purpose,
Leathers would not be dispositive. It is clear that the factual record in Leathers (lid not include the
type of contractual relationship described in the voluminous record in this case ----whereby the
OTCs contract to collect all monies from the customers (including any and all taxes),- use
mathematical Formulas that, in many instances, apply the tax rate to the full retail charges -7 and
solely inalwain the relationship with the customer all the way up until the customer arrives at the
hotel. 'Thus, the Court finds that, even without the 1995 amendment, the Leathers case is clearly
distinguishable from the facts of this case before it,
VIII. Undisputed Material Facts
While at times the Parties difTer in the characterizations or libels they use, the parties agree
that the material facts of this case are not in dispute. The Plaintiffs are Arkansas counties and cities
that have tax ordinances that impose taxes upon transactions for lodging or accommodations in
their jurisdictiorts, as set forth above. The Plaintiffs consist of individual named Plaintiffs .Pine
Bluff Advertising and Promotion Commission., Jefferson County, Arkansas and Plaintiff -in -
Intervention City of North Little Rock, Arkansas and Class Members ("Members") that fall into
the two af6reni entio tied classes (-Classes") that have been certified by this Court and of firmed as
such by the Arkansas Supreme Court.
Customers are those interested in purchasing Arkansas accommodations for themselves ,7 or
for others, I -lie CLIStOnlet'S Obtain the ri.gh.ts to accorn-modations by purchasing such rights in a
7 In all Casez,, the 0I -C', bundle taxes along with other amounts and create a bundled "taxes and fees" line. Nearly
always, this bundkd amount approximately qual,,,, it' not exceeds, (lie taxes on the retail price or the total gross
receipts,
IS
number of ways: (1) fi-orn accommodations businesses located within Arkansas (such as from a
local hotel property); (2) from national and international accommodations companies that are not
residents of and do not have principal places of business within the state (such as Starwood or
www.stanvood.com).- (3) through in-state and out-of-state travel agents (online or offline)- and (4)
through for-profit companies that are often self -described or identified by others as Online Travel
Companies or OTCs. OTCs maintain travel websites through which the public may book hotel
rooms, airline reservations, rental cars, packages, and other travel -related products and services.
This case involves only the Taxes on Arkansas accommodations reserved and paid for by
custorners via the OTCs and/or their websites.
Though characterizations and labels may vary between the Parties, it is undisputed that the
OTCs made the decision years ago to engage �fii business with Arkansas accommodations
businesses and with Arkansas travelers (meaning those interested in purchasing the rights to
Arkansas accommodations regardless of their point of onginationflocation), The OTCs advertise,
market, and promote travel destinations nationally, including within Arkansas, and the OTCs have
handled and continue to handle transactions pertaining to :the purchase of short-term
accommodations within Arkansas.` To purchase a reservation through an OTC, the Arkansas
customers must accept the OTC's terms and conditions, as well as the OTC and hotel's cancellation
policies and other rules and restrictions applicable to the reservation. The OTCs do not allow
custorners to pick and choose which provisions to accept or reject it is an all -or -nothing
agreement between the OTCs and the custorners. Similarly, with respect to the charges displayed
on their websites. there is no inecharusm by which a customer can accept and pay for nightly roorn
� Most transactiom art via the intenier. though phone calls may be used as a means of booking,
confirwation, or payment in somle case -s.
' The exact start dates, fiorhotel book-itil", transact ions vary byconipany,but many of the OTCs began .handho- bookings
more than 15 years ago, accordincr to the record in this ca.so,
19
charges without also iiicuming, service fees, facilitation fees, and taxes- It is also undisputed that
the charges the OTCs present oil their websites are "bundled" and do not provide separate
itemization for any of the following: (1) the net or wholesale rate; (2) the markup or facilitation
fee; (3) the "service fee" or fee that appears on. the tax I me; and (4) the Tax(es). Items I and 2 are
bundled together., as are items 3 and 4. In fact, even if a customer calls and requests a breakdown
of the charges, the OTCs will not provide it.'o
To accomplish or conduct their business operations, the OTCs negotiate and enter into
contracts with Arkansas accommodations businesses such as local hotels and motels, but these
contracts cannot subvert Arkansas law. With the contracts in place, the OTCs. possess numerous
rights that can vary slightly from year-to-year or contracts -to -contract but which generally, if not
uniformly, include the following: (1) the right to access accornrnodations "inventory -11
(sometimes through central reservations services or CRSs and/or through third party databases of
such inventory); (2) the Fight to advertise, market, zrid display such available inventory on their
websites., (3) the right to use the trademarks and trade names of accommodations companies (such
as Hilton) to advertise, market, and promote such inventory; (4) the right to charge customers oil
,a prepaid basis for all charges for the accommodations, including all applicable taxes: (5) the riolt
to collect from customers (on a prepaid basis) all charges for the accommodations, including, 411
applicable taxes; (6) the rio, it to perforin credit card processing and customer service and handle
cancellations and refunds consistent with their own policies as well as any applicable, policies that
"'The 0TGq daim that they discuss or explain their charges to Customers with. language presented on their websites,
bot this, is not an iternization of the dollars and cents for the individual components. The general infonnation provided
by the OTC, dms riot cuabIQ ail',' CLI.StOrner to determine how much (hey are paying, iu OTC fees, nor (toes it cnablQ
any customer to kno", the amount they are paying in Taxes. The idea that Nrkarisa-,, taxpayer: are requked to pay
Taxes to this State and to the local "on ernuients vvithin the State but are not entitled to even know wbal the,; arc paynny
in Taxes, is antithetical to common sense, fundamental principles of tax transparency, and the specific legal and
regulatory requirements set forth within the taxation scheme at issue hem
-[,he Court will use the tern) "im-cirtory" herein, The O'rCs,' contracts, statements to the U.S. Security and Exchange
Cornniission_ and other materi,11,, xithin the record use terms such as "inventory," -allocation," and "allolnieffl-
somewhat SiMdUIV or interchangeably.
20
the accommodation businesses may have; and (7) the right to and the role of serving as the one
and only merchant of record to appear on the customers' credit card statements for each booking.
In short, the OTCs obtain significant rights over Arkansas accommodations through their
contracts. Undisputedly, the OTCs individually and collectively have carried out a substantial
number of business transactions relating to bookings of Arkansas accommodations. Notably, the
contracts give sole tax collection authority and responsibility to the OTCs such that hotels and
other accommodations businesses are not allowed to collect any taxes on the prepaid amounts from
the customers, nor are the accommodations businesses allowed to divulge or explain the
breakdown of the OTCs' bundled charges --even if a customer requests a breakdown of the
charges, as discussed above.
In terms of pricing, Mifle accommodations businesses retain the right to set the wholesale
or net rates they will accept or receive some time after the OTC charges and collects from its
customers, the OTCs obtain the right to set the final retail price/tota I gross receipts amount
presented and charged to the customers, While the number of rooms of accommodations may vary
due to occupancy or the accommodations business's decision as to how much inventory to make
available, once the inventory is made available and booked on an OTC website, the OTCs and, in
turn, their customers, have binding contractual rights that cannot be simply or arbitrarily taken
away, Specifically, barring rare circumstances, the accommodations booked cin an OTC website
are guaranteed. Even in those rare circurnstances where a hotel is oversold, for instance, the
accommodations business are generally required to treat the OTCs' customers at least as favorably
as—and often more favorably than—their direct customers, 11
12 As addressed in greater detail lig rein. though the OTCs deny having any control over the rooms they book and deny
that their cuctonxrN even have a richt to a room as a result, of the transactions on their websites, the evidence
deriionstratcs that this is a litigation "portrival' or The undisputed facts actually demonstrate that
the OTCs and their customers have contractual rights tha( cannot simply or arbitrarily be set aside. As PilintitTs'
counsel pointed out during, or -al argument, custoniers do not go to the arcs, websites, select roorns. pay all charges
on their credit car&, than travel to Arkansas, go to the hotel, tel, and merely "hope" that they might possibly have a room
21
Relevant to this case, both directly and as context, there are five "models" by which hotel
rooms are rented, as are outlined in other national decisionsP including as contained in the detailed
Order frog the Wyoming Supreme Court:
First, tile hotel may simply rent the room itself, and the entire transaction is
taxed at a maximum of 10% under current rates. Second, a travel agent may
book the room for a traveler. In that kind of transaction, called the "agency
model," the hotel charges the travelerfor the roonn and pays tax on the entire
room rental, but remits a commission to the travel agent. The amount Of the
agent's commission is therefore taxed. because it is paid from the; total room
rate. The modified merchant model, the third variant, is similar to the
agency model. In it, the customer pays the OTC to occupy a room with a
credit card, and the OTC also collects tax on the full arnoutit of the rental.
The OTC then remits all of the funds received to the hotel, which pays the
OTC a commission, and the hotel pays tax on the entire amount paid by the
customer to the OTC.
The controversy in this case involves the merchant model, which comprises
tile majority of the OTCs' business. In it, the OTC collects the net rate the
hotel liasagreed upon, the amount of tax estimated on the net rate, and what
the OTCs call a "service" or "facilitation" fee. The putative service fee is a
markup from the net rate the hotel has agreed to plus the tax on that base
rate. The parties sharply disagree as to what this difference should be called
because it may affect the outcome, and in all effort to use neutral
terminology, we will refer to it as "the markup." If the guest utilizes the
reservation, the hotel bills the OTC, and the OTC pays it the net rate plus
the estimated tax. The OTC retains but does not pay Wyoming sales tax on
the niarkup. The hotel pays the state or local taxing authority (in this ease
Wyoming) the tax due on its net rate.
Under the merchant model, the hotel Is not informed of the total amount
paid to the OTC by the customer for I reservation. The customer is not
informed of the net rate the hotel has agreed upon or the amount Of tax
collected upon it. Without conducting an audit, state and local taxing,
I
authorities, including tile Wyoming Department of Revenue, cannot
determine tile basis for the tax collected on each transaction. Only the OTC
knows how nitich its markup is. .. ,
waitin" for theta. liiswa(i. the cuiomers have w,, a nutter of fact and coiitracr. (I) a prepaid bookino with a
colifirmaiion number, (2) a bindiw�4 contraut wi th the OTC (which in Rim has one with the correspDiiding hotel), and
(3) a contracinal guarantee that a room will be available as zi matter of rad and coll(ract. If tile plarantec" and coluracts
were not in place_ obvIously inany clistopicrS would obtain their bookino", in other more W,,SUred ways. As Plwnti rfis'
i
Counsel explained. the OTCs' arc not buvinu, "lottery tickets". they are booking the right to a room and
Bally expect to have a room waking when they show up. '['he OTU characterizations to (lie contrary fly in the face
of comn-lori sense, the rQpre'-'ent.,11ions made on their o'xii websites, wid the terms of their contracts. Litigation labels,
of course, ewinot and do ji(x alter tl)c kinoispoted factu'il and contractual record.
22
The parties agree that although the hotel is obligated by its contract with the
OTC to provide a room of a certain type and quality, the hotel assigns the
room and charges for any services not included in the rate, including meals,
health club access, etc, The OTC has no voice in the room assignment. The
parties also agree that the customer can only obtain a refund from the; OTC
Linder the inerchantrnodel — the hotel cannot grant a refund.
The "opaque" model is also used by certain of the OTCs. This is a variant
of the merchant model. In it, the customer does not learn. the identity of the
hotel until the reservation is made and payment is received. Reservations
cannot generally be cancelled and it is nearly impossible to obtain a refund.
The OTC remits the net rate and the estimated tax on that amount before the
date of the traveler's stay'The OTC has the exclusive right to make
ft
exceptions to the no -refund policy. The OTCs retain the markup and do not
pay sales tax on it, so the tax issues are the sameas with the merchant model,
and they will not be discussed separately.
As will be addressed in further detail, the taxing authorities generally argue
that tax should be paid to them based on the gross amount the customer pays
for a room, while the ows contend that the markup is not taxable by the
state or local government entity in which the hotels are located because it is
a service fee,
See Wyo. Dept of Revenue, 2014 WY 43 at P9 -P1 5.
It is undisputed that when accommodations businesses in Arkansas handle or "facilitate"
their own bookings, they must pay the Taxes not, just on the room itself but on services relating to
the room rental, including but not limited to advertising, marketing credit card processing, and
Z7 C�7
customer service. The acconyrtiodations businesses generally do not seek nor do they obtain
exclusions, deductions, or excinptions for those categories of charges. Similarly, when
accommodations bLlSineSSCS work with travel agents, taxes are collec-ted and remitted on the total
charges paid by the customer, not the lower not amount retained by an accommodation business
after paying the travel agent's commission. See 14',o. Dept qfRevenue. 2014 WY 43 at P9. Thus,
it is undisputed that in travel a -crit bookings the law does not permit customers (or anyone else oil
their behalf) to secure exclusions, deductions, or exemptions for any advertising, marketing, credit
card processing, and/or custom er services rela(ed to the room booking, and instead, "Praxes vire paid
on tile total retail price/gross receipts paid by the customer. The fact that in "merchant model"
23)
bookings through the OTCs, the customer pays all money first to the OTC (who passes much of it
on to the hotel) versus in "agency" bookings whereby a customer may pay all of the money first
to the hotel (who then gives a portion to the agent as a fee or conit-nission) is of no .import under
the law. That is. the manner or order in which the payments of the gross receipts by the customer
are collected from the customer does not alter the tax basis,
The undisputed material facts in this case are based on the vhuninous record before this
Court, including the OTCs' contracts with Arkansas accommodations businesses, the OTCs'
sworn statements to the U.S. Securities and Exchange Commission ("SEC"), and the written and
oral discovery produced in this case, including the OTCs' mathematical formulas through which
they calculate their "taxes and fees" line item.
A. OTCs' Merchant Business Model"
The OTCs sell, rent, lease., or otherwise furnish hotel rooms to customers for profit via a
business model tenned the "merchant" model. The OTCs' merchant business model is a prepaid
model by which the OTCs profit by selling, renting, leasing, or otherwise 'furnishing hotel rooms
to customers at retail pjiI ,, higher than the wholesale (or net rate) prices for which the OTCs
acquire the room inventory from brick -and -mortar hotels. The OTCs' merchant model business
practices are nationwide practices that do not vary from jurisdiction to jurisdiction, nor do they,
according to the OTCs, differ bet%veen the Defendant companies for the purposes of these Motions.
Indeed, the OTCs admit that as the merchants of record they, not the hotels, collect the total amount
charged for the hotel room frorn the CLI.StOrner at the time of booking, including taxes. The details
of the OTCs' merchant model and the nature of the OTCs' relationship with brick -and -mortar
hotels are described in then- contracts, SEC statements, and the rnathematical formulas that they
use to calculate the amounts displayed and charged to CLIston'lers.
"See gcnerad ), PlaintifEs," NIGfloll for Su'11111�irY Jud-1.1111ent at 6-12.
24
1. The OTCs' Contracts14
The OTCs take the position that, under their merchant business model, they are merely
"intermediaries"'who "facilitate" the retail sales of hotel rooms,'-' However, the powerof contracts
cannot be ignored. Here, two parties reached a meeting of the minds and contracted to define their
relationship, which is much more than that of a "facilitator" or even a "broker."' These contracts
are central to the Court's analysis of the OTCs' merchant business model and the taxability of
OTC customers tinder Arkansas law.
Under thcir contracts with hotels, the OTCs acquire inventory, room availability, allocation
anchlor allotments and then furnish that inventory of rooms to customers pursuant to their own
contracts with their customers. For example, in a contract between Expedia and Hilton,. dated
August 22, 2000, the services provided by the OTCs were defined as:
The services. Web Service Provider is building a proprietary online service
which will be accessible via Web Service Provider's website that will
enable customers to make Hotel Reservations [,which is defined In the
contract as- an available room sold or offered for sale at a specified price by
an entity].., Customers who use the service for Hotel Reservations will
specify Criteria and Web Service Provider, -based on its inventory of
Available Rooms, will determine whether it can meet such customer's
specifications.
Plainly, the "service,,," the OTCs contract with hotels to provide include. the "selling, renting,
leasing or otherwise furnishln,g roorns."
Further, the OTCs' contracts with hotels exhibit the OTCs' complete control of the
financial aspects of rnerchant model transactions. As the memliant of record., the OTC establishes
the retail price it charges a custorner for a hotel room by being in control of the "fees" and "taxes"
14 See gt?ijel.e,/IV ?Iaillti jy,, Njoji
U11 fi,)rSUrnII!arV AldLlnlellt at 6-11—
'5 Although this Court's decision is not based on this provision, it merits mention that from April 2011 until February
2015, the Gross Receipts Act n,icluded a provision that specifically targeted "I'acilitators."See Ark. Code Ann, § 26-
52-1 10(a)(3). This provision is consistent with Plaintiffs" position and this Court*s interpretation of the law, and was
never addressed by the Defendants.
'6 Of course, whother termed as €i principal in the tra nsac (ions or as a br6k-er, the OTCs are liable iii either event as
undisputed tax collectors that cklihm and remit taxes in accordance kvidi clic;1111W.
1
it adds to the net rate price for the hotel roorn. 1he OTC then charges the customer's credit card
for the retail price of the room, which includes the net rate price and a facilitation fee, plus a
bundled, non-iteinized amount for "taxes and fees," Once the customer pays for a room through
an OTC website, the reservation is complete; the customer receives from the OTC a reservation
confirmation and, along with it, the right to occupy a hotel room. However, the OTC's involvement
does not end there. From the time of credit card payment until the customer physically arrives to
check into the hotel, the OTC governs all aspects of the transaction, including reservation
modifications or cancellations, refunds, and customer service. In s(yrne cases, the customer never
shows up at the hotel to claim a room reservation and, thus, the customer's only involvement is
with the OTC.
The OTCs argue that, despite the contractual language, all a customer receives from them
is a possibility or "expectation" that the hotel "may" provide them with a room when they arrive.
The Court finds this position unpersuasive and illogical. If that Characterization were true, no
customer would ever book through an OTC. Following the money in this case, it is clear that the
payment goes from the customer's credit card to the OTC's bank account. Based on the undisputed
facts in this case, the only reasonable conclusion regarding who in a merchant transaction provides
the SetlliCC Of Selling, renting, leasing, or funiishing the room is the OTC. It would be simply
nonsensical to conclude that the entity that collects the payment from the customer and provides
the reservation confirination, modifications., cancellations, and customer service does not "rent,
lease. OF OtIICIAViSe fUnliSh" the mono.
Stepping further inter the role traditionally handled by brick-arid-inortar hotels themselves,
the OTCs contractually assume the business activity of marketing hotel rooms on their vv-ebsites
using the hotel's logos and tradernarks. For example, a contract dated March 14, 2011, between
Hotels.com and Sohom, LLC, a local hotel in North Little Rock, provides;
26
11. Merchandising. The companies and the affiliates have the right, for the
purposes of identifying, promoting, inerchand i sing, and/or obtaining
reservations for the Property, to use the naive, logos, trademarks, images,
and other content from Property's website, providing by Property or
otherwise obtained by the Companies with Property's knowledge and/or
consent.
In another contract between Expedia and Hilton dated August 22, 2000, Hilton grants the OTCs
"a limited, revocable, non-exclusive, non -transferable license for the term of this Agreement to
use the Hilton Properties solely for the purpose of developing and maintaining the Web Site."
These examples establish that the OTCs are not merely middlemen in these.ttansactions. Instead,
the OTCs clearly contract to step into the shoes of the hotel and become the only party who has
any contact with the customer from the time of booking until the customer checks into the hotel.
During this time, the OTCs are the only entities that collect gross receipts from the customer and
provide them with reservations. These functions are precisely what the Legislature intended to
encompass in devising the Taxes, and it would result in disparate treatment to find otherwise:
2. The OTCs' Formulas
The factual record before, this Court indicates that the, OTCs (to, in fact, collect taxes from
the customer based directly -upon the retail priceltotal gross receipts the customer pays the OTC or
generally designed to equal or exceed those amounts.
Indeed, a direct booking through a hotel—from which the taxing authority receives taxes
on more than the ",wholesale or net" rate—will typically have a total :charge that is equal to or
within pennies of the total charge on an identical OTC booking, Yet, the OTC always remits
significantly less tqxes to the hotel than what the ow collected, and the OTC retains all charges
paid in excess of the net rate sand taxes on the net rate. In fact, Expedia, the largest OTC group, has
mathematical formulas that dernonstrate a direct application of the statutorily imposed tax rate to
the margin or mark-up, even though no taxes are ever rernItted on that ,amount.'' it is clear this
practice is longstanding and not isolated. An internal email from Expedia confirms this practice as
early as 2002.18 Further, the corporate representative for Tra-velocity, another Defendant group in
this case, testified that the variable percentage rate used to calculate the company's service fee or
facilitation fee usually worked out to be similar or the same as the tax rate for the jurisdiction
where the transaction took place, The OTCs admit that they bundle the "taxes and fees" line in
their charges in an attempt to rnimic the tax amount that brick -rind -mortar hotels charge, for the
purpose of concealing the wholesale or net rate of the room fi-orn the customer. The OTCs did not
identify, nor Is this Court aware of, any other companies in the hotel industry or otherwise that use
governmental tax rates and fonnulas for calculating and collecting private profits or revenue. This
practice clearly constitutes conversion of public tax proceeds into private profit.
3. The OTCs' Statements to the SEC
In addition to the OTCs' business practices as dernonstrated through their contracts with
hotels and their own websites, the OTCs' statements to the SEC further establish their practice of
selling hotel rooms to customers for profit at marked -up retail rates. As 'Plaintiffs' counsel
explained at oral argument, the OTCs' SEC statenients—which each Defendant has confirmed arc
truthful and accurate—describe their business model:
We sell travel services through five different distribution channels. The
primary distribution channel is through our own websites.... Under the
merchant model we receive inventory (hotel rooms, airline seats, car rentals
from suppliers at negotiated rates. We determine the retail price paid
by the customer and we then process the transactions as the merchant of
record for the transaction. Acting as a merchant enables us to achieve a
higher level of gross profit per transaction.... Integrating merchant
inventory with the ESP technology platform has enabled tis to create
product offeririgs,.-
Thow f0mi"Alas were presemcd to this Court but are being maiintaimA under seal.
As with (be formulas- certain irl!'-'real cor-respondencc was presented to this Court, but it also wider seal.
This statement. and others like it, lends further support to this Court's understanding of the OTCs'
business model and their liability for the Taxes based on their business practices.
B. Breakage
Thclares' improper conversion of public tax proceeds is even more blatant in "breakage"
situations where customers prepay an CFTC the full retail price for a room plus an amount for taxes
but, either because of hotel error or because the customer was a no -shoe, the hotel fails to invoice
the OTC for the transaction. Cinder the OTCs' contracts tvith hotels, after a certain amount of time
has passed without an invoice, the OTCs have no obligation to remit any amount collected. In
these "breakage" transactions, the OTCs collect tax lira; charges from the customer and keep the
entire amount as profit, remitting nothing—only because the hotels fail to invoice the OTCs.
Arkansas law plainly and directly prohibits the OTCs from retaining tax monies that rightfully
belong to the taxing; entities.
1X, The OTCs' Transactions are Taxable
Based on the foregoing, this Court finds that the OTCs rent, lease, or otherwise fumish
hotel rooms in the State of Arkansas and in the jurisdictions of the Class A and B members. The
OTCs are therefore liable for the Taxis on all such transactions.
This Court is not alone in its conclusion that. the OTCs rent, lease; or otherwise furnish
hotel rooms through their transactions. The Supreme Court of Colorado and the Superior Court of
the District of Columbia are in accord. See Citic and C:oz my of Denver v, Erpedict.com, 2017 CO
32, T 24 (2017) ("Although the [OTCs] maintain that even in merchant -model transactions they do
not sell, or furnish for consideration, a right to occupy or use: the hotel rooms in question, no matter
what terminology they may c hoose to use in describing their transactions, as a function matter that
is precisely what they do, ): JXvrict of Columbia v, E-Yje iia,, ]nc., No2011 CA 002117 B, 2012
S.C. Super. LEXIS 14 at 14-10 (D.C. Super. Sept. 24, 2012) ("Regardless of the particular names
29
that Defendants choose to attach to their transactions with transients, the Court finds that
Defendants' services fall within the services taxable under the gross sales tax law,")
X. The OTCs' 'Fees" are Taxable
The next determination bC1'0TC this Court is whether the OTCs' fees arepart of the tax base.
The OTCs charge "facilitation fees" and -service fees" that they retain as compensation from each
hotel room booking made via their websites.9 As provided above, under Ark. Code Ann. § 26-52-
103(13)(A), the Legislature specifically defined "gross receipts" and "gross proceeds" to
encompass all consideration received, including "any charge by the seller for any service necessary
to complete the sale, other than a delivery charge or an installation charge.- It is without question
that a customer must pay yin OTC's facilitation and service fees to complete an online OTC
booking. A customer cannot make a room reservation through an OTC without paying the OTCs
"fees," Thus, these "fees" stand in contrast to optional charges such as in -room movie rentals that
are assessed to a customer only if and when the customer rents a movie. Put another way, under
Arkansas law, the OTCs' "fees" are legally pail of the tax base because they are "necessary to
complete the sale."
Further, the OTCs' admitted business practice of bundling their fees with the net rate price
of the room and in the "taxes and fees" line itern is improper and conceals the true tax amount
from the customer and the taxing authority, This practice alone renders the OTCs liable for the
Taxes on the total aniount collected frorri the customer, as exemptions or deductions from the
taxable amount are only given for items that are separately stated. See Ark. GR -3, Further, tax
transparency is imperative, and clearly the OTCs' practice of bundling charges conceals from the
government, the customers, aiid the courts the tax amounts (or "tax recovery charges") collected
�0 -Cs provide to
I As sit forth abom there is no IC -Wal distinction be.twe(�n the services hotels, trllivel agencies, and 91
C011141111CPS SUCh that the. ()TCs,services should be exempt from mmition and the others' tiot.
30
and ultimately retained by the OTCs. This violates Arkansas law, Notably, the (YI'Cs have not
provided any explanation as to how their "bundling" practices do not subject there to liability for
the Taxes on the total amount charged to the customer.
Lastly, the OTCs argue that the "net rate" agreed to between, the OTC and the hotel
4ZII
constitutes the taxable amount. This simply does not harmonize with the evidentiary record before
this Court. First, the OTCs argue that they bargain for the net rate in their contracts with hotels,
and thus the net rate should be the "sales price" of the timnsaction. However, as the OTCs
themselves have pointed out, their contracts with hotels do not amount to a "sale" of a hotel room.
The true sale•- -the transaction for the right to occupy a hotel room—occurs between the customer
and the OTC. Thus, the total amount, paid in the transaction between the customer and the OTC is
the proper tax base. Second, even if one viewed the tax bast; as being strictly what the hotel
receives, the tax base would still equal the total amount charged to the customer because the hotel
not only receives the net rate ftom the OTC but also the valuable services that the hotel would
norrnally provide that the OTC contractually assumed. No matter how the transaction is analyzed,
the tax base is the total value of the transaction, i.e., the gross receipts,
X1. Supplemental Relief
Declaratory judgment actions arc governed by Ark. Code Ann. §§ 16.111-101. et seq.
Under the Uniron-o Declaratory Judgments Act, this Court is permitted to award damages as
supplementary relief'purs-oant to Ark, Code Ann. § 16-111-108, which reads:
Further relief based on a declaratory judgment or decree may be granted
whenever necessary or proper. The application therefore shall be by petition
to a court having jurisdiction to grant the relief. If the application be deemed
sufficient, the court shall, on reasonable notice, require any adverse party
whose rights have been adjudicated by the declaratory judgment or decree,
to show cause why further relief should not be granted fbilh-,,vith.
Further relief, which is authorized whenever necessary or proper, may include an award of
dainages, llaty.y if. Arves! Bank, 94 F. Supp. 3d 1012, 103) 1 (E.D. Ark. 2015),
31
This action is one for declaratory jUd&nnent. The Court has made its determination and
declares that the OTCs are, liable for the Taxes in the class mernber jurisdictions on the total
amounts they collect from their customers. Having made this determination, it is proper for the
Court to consider necessary and proper supplemental relief prior to entry of a final order and
judgment. To that end, the Court has established guidelines in its Order filed herewith to allow
named and putative class members to seek such supplemental relief.
IT IS SO ORDERED.
HONORAB Lq ROBERT li...:WYATT, JR.
JEFFERSON COUNTY CIRCUIT JUDGE
DATE
32
IN THE CIRCUIT COURT OF
JEFFERSON COUNTY, ARKANSAS
PINE BLUFF ADVERTISING AND
PROMOTION COMMISSION,
JEFFERSON COUNTY, ARKANSAS,
AND ALL OTHERS SIMILARLY
SITUATED,
Plaintiffs,
V.
HOTELS.COM, L.P.; HOTWIRE, INC.;
TRIP .NETWORK, INC.
(d/b/a CHEAPTICKETS.COM);
TRAVELPORT LIMITED; EYPEDIA,
INC.; INTERNETWORK PUBLISHING
CORP. (d/b/a LODGING.COM),
LOWESTFARE.COM INCORPORATED;
ORBITZ, LLC; PRICELINE.COM
INCORPORATED;
TRAVELOCITY.COM L.P.;
TRAVELWEB LLC, AND SITE59.COM,
LLC,
Defendants.
Case No. CV -2009-945-5
ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT
This Court, having considered all briefing and oral argument on the Parties' Cross -Motions
for Summary Judgment, and for the reasons further explained in the Court's Memorandum in
Support of Order on Cross -Motions for Summary Judgment hereby DENIES Defendants' Motion
for Summary Judgment and GRANTS Plaintiffs' Motion for Summary Judgment. The Court finds
and orders as follows:
(1) The OTCs are liable for the taxes established in Ark. Code Ann. § 26-75-602(c)(1) and
Ark. Code Ann. § 26-52-301(3)(A)(i) on the full gross receipts they receive from
customers, consistent with this order. This finding applies to their past transactions, current
transactions, and any other transaction conducted under the merchant business model.
(2) The named class members have 30 days from the date of this Order to petition for additional
relief permissible under the law relating to past taxes owed, supplemental relief or
otherwise, including but not limited to amending the Complaint.
MAY 1 4 2018
WOODS, SR, CIRCUIT
COUW4 AR1 MSA
6 ;T
(3) If the Court rules that supplemental relief shall begranted, the OTCs will have 30 days to
provide all transaction data for the named class members who filed a petition for
supplemental relief, including data from which breakage amounts can be calculated, for
the time period and transactions at issue so that a calculation of the amounts due, including
penalties and interest can be completed.
(4) Notice shall be given to all class members of this finding of liability and their right to
intervene for the purpose of detennining damages. The unnamed class members shall have
120 days from the date of this Order within which to intervene as individual plaintiffs, in
order to pursue supplemental relief pursuant to the Court's declaration of their rights and
to do so efficiently and in a consolidated manner to avoid duplicative discovery and
unnecessary utilization of court resources.
(5) If the Court rules that supplemental relief shall be granted to the interveners, the OTCs will
have 30 days to provide all transaction data for the individual intervening class members,
including data from which breakage amounts can be calculated, for the time period and
transactions at issue so that a calculation of the amounts due, including penalties and
interest can be completed.
(6) Once the damages have been calculated, the parties are ordered to proceed with mediation
with Mr. James W. "Jim" Tilley of Watts, Donovan and Tilley, 200 River Market Avenue,
Suite 200, Little Rock, Arkansas 72201 (501) 372-1406 within 45 days in order to reach a
determination on the final amounts owed. The fees for the mediation shall be split equally
between the parties.
(7) This Preliminary Order is not final and will be held open consistent with and to allow for
further development of these proceedings consistent with the steps outlined above. This
Court accordingly retains jurisdiction to determine any and all further and supplemental
relief appropriate.
IT IS SO ORDERED.
HONORABLEROBERT H. WYATT, JR.
JEFFERSON 0CUNTY CIRCUIT JUDGE
DATE