San Diego can collect an occupancy tax on any charges hotels require online travel websites to pass along to customers, the California Supreme Court ruled Monday.
But in a unanimous ruling, the court said the city cannot collect an occupancy tax on any fees online travel websites independently tack on. And the court said the city must collect taxes from the hotels themselves and can't go after the websites.
The ruling will affect hundreds of cities in the state with occupancy tax ordinances similar to San Diego's.
"This represents a partial win for local government and a partial loss," said Michael Colantuono, who represented the League of California Cities in the case.
Cities now will be able to collect taxes on the full retail rate for a hotel room that online websites charge if that rate is required by the hotel. Colantuono said cities wanted to collect that tax even when the travel site independently imposed the higher charge.
Emails to attorneys for the city and online travel websites, including Hotels.com, were not immediately returned.
The ruling came in a lawsuit by the City of San Diego seeking $21 million in taxes from online travel websites. At issue in the case are requirements imposed by hotels that require travel websites that receive a discounted rate on rooms to charge customers a higher retail rate to ensure that the room is not available for less than what the hotel quotes customers directly.
The state Supreme Court said the higher, retail price is taxable to the extent that it's imposed by the hotel, but not if it reflects fees tacked on by the websites themselves. That's because the occupancy tax applies to money charged by hotel operators, and websites are not hotel operators.
Hotels have been paying occupancy taxes based on the lower, wholesale amounts they received from online sites, not the higher price sites charge customers.