Travel sites bilk cities, suit alleges

The city of Newport Beach, which may joining a class-action lawsuit against online travel companies, may be losing millions of dollars every year in hotel room taxes, city officials said.

Newport Beach is one of several cities in Orange County that has expressed interest in joining a lawsuit originally filed by Los Angeles officials. The suit names more than a dozen Internet companies suspected of charging exorbitant rates for hotel-room bookings, then failing to turn in the extra tax dollars to the cities where the bookings take place.

The Newport Beach City Council is expected to consider joining the suit at its Tuesday meeting.

Revenue manager Glen Everroad said Newport Beach is projected to make $11.2 million this year off of taxes from hotel rooms — better known as transient occupancy tax — but meddling from online companies may have depleted that number by more than 30%.

“Clearly, a significant percentage of folks who are staying in hotel rooms are finding their way there through the Internet,” he said.

Online travel companies often make deals with hotels to sell rooms to prospective tenants, he said. The companies are obligated to give the hotels a certain amount for each room, but the bookers can sell the rooms to customers for any amount. In a city with a 10% tax rate, then, a $50 hotel room would net $5 in transient occupancy tax.

If the travel company, however, rented the room for $100, the rightful tax to the city would be $10. The suit filed in Los Angeles, however, alleges that many companies merely pay tax on the amount agreed upon by the hotel — in other words, $5 rather than the $10 actually owed, since the hotel officials do not know how much the customer paid for the room online.

Gary Sherwin, the president of the Newport Beach Conference and Visitors Bureau, said those dollars could add up to a huge amount.

“Potentially, you’re talking about several million dollars,” he said. “The Internet sites are one of the leading ways people book travel, and that’s one of the reasons a number of cities are looking into this [lawsuit]. There appears to be a bit of a gap there that they’re seeing.”

MICHAEL MILLER may be reached at (714) 966-4617 or at [email protected].