Hospitality Expert Opines on Tax Dispute Involving Hotel Room Sellers

The plaintiff city claimed the defendants, online sellers of hotel rooms, failed to pay taxes due to the appropriate government entities.

Zach Barreto

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— Updated on April 25, 2022

Hospitality Expert Opines on Tax Dispute Involving Hotel Room Sellers

Court: United States District Court for the Northern District of Georgia, Rome Division
Jurisdiction: Federal
Case Name: City of Rome v. Hotels.com, L.P.
Citation: 2012 U.S. Dist. LEXIS 198879

 

The defendants retained a hospitality expert witness who opined on the variety of booking channels in the hospitality industry. However, the plaintiffs argued that two opinions in the expert’s report were unhelpful to the trier of fact.

Facts

The plaintiffs claimed the defendants failed to remit taxes due to them and other political subdivisions of Georgia. The defendants are online sellers and/or resellers of hotel rooms to the general public. Allegedly, the defendants failed to pay taxes due on such transactions to the plaintiffs and the appropriate government authorities. The plaintiffs argued that their excise tax on rooms, accommodations, and lodging required the defendants to collect and remit taxes on behalf of the county and municipal authorities. The plaintiffs could levy tax between the rates of 3-8% as per Georgia’s revenue and taxation regulations.

The cost of transient occupancy and/or excise duty is measured as a proportion of the price paid by each customer occupant to a hotel room by the defendant operator. That was the amount that each defendant was expected to remit to the plaintiffs, as alleged by the latter. The plaintiffs also allegedly mandated the defendants to charge the public. Then, the defendants were mandated to remit sales taxes to the appropriate government authorities for the hotel rooms they sold. The plaintiffs argued the defendants owed the plaintiffs a portion of the sales tax payable based on their local ordinances. The defendants retained a hospitality expert witness to testify about the applicable tax obligations. The hospitality expert also opined on the tax practices hotel operators and online booking channels in the hospitality industry employed.

The Defendants’ Hospitality Expert Witness

The hospitality expert witness served in the hospitality and travel industry for more than 37 years. He has run well-known resorts and also acted as Managing Director of Games Services at the Atlanta Olympic Games. Furthermore, he consulted with hotel owners, marketing and consulting companies, designing and advising hotels on online distribution networks. Additionally, the expert has advised travel-related companies on the use of technologies for both business and marketing purposes. The hospitality expert’s primary interaction with Online Travel Companies (OTC) was through his consulting firm.

The hospitality expert witness gave four opinions in his expert report:

  1. Intermediaries do not use, rent, own, manage, possess or operate hotels
  2. OTCs are today only one of the many booking channels in the hospitality industry
  3. Numerous booking channels calculate and pay taxes based on the hotel’s net rate and don’t pay taxes on their fees
  4. There can only be one hotel operator

Arguments

The plaintiffs focused on two of the hospitality expert witness’s opinions. Firstly, the plaintiffs alleged that the expert wanted to testify that, according to the Enabling Statute and local ordinances, OTCs lawfully paid hotel occupancy taxes based on the net amount agreed between OTCs and hotels. According to the plaintiffs, this opinion was not reliable, unhelpful to the trier of fact, and an inadmissible legal conclusion. Next, the plaintiffs argued the expert’s musings about non-OTC distribution channels would not help the trier of fact. The plaintiffs then demanded that the court exclude the expert’s opinions.

The defendants argued the expert was uniquely qualified to deliver the four opinions set out in his expert report. Furthermore, the defendants stated that they did not offer the hospitality expert as an expert to consider whether the OTCs had properly paid hotel occupancy taxes based on the net rate negotiated between the OTCs and the hotels. The defendants also emphasized that the plaintiffs’ motion didn’t mention or challenge the two main opinions—the first and fourth opinions. According to the defendants, these opinions were relevant and reliable. The defendants argued the expert’s opinion about non-OTC booking networks was relevant to this case and instructive to the court.

Discussion

To the point that the expert claimed that, according to the Enabling Statute and local ordinances, OTCs lawfully charged hotel occupancy taxes based on the net rate agreed between OTCs and hotels, the court found this testimony inadmissible. The defendants agreed that the Supreme Court of Georgia had already settled this legal issue. Furthermore, the defendants claimed that the OTCs had not presented the hospitality expert as an expert on the topic. The first and fourth opinions were admissible because the plaintiffs did not challenge them. The court further noted that the second opinion was admissible due to its capability of helping the trier of fact to decide whether the OTCs deliberately avoided their tax obligations.

Ruling

The court denied the plaintiffs’ motion to exclude the testimony of the hospitality expert witness.

Key Takeaways for Experts

Experts should be wary of including opinions in their expert reports that are not relevant to the case at hand. In this case, the plaintiffs argued the expert’s first opinion was unhelpful to the trier of fact. To prevent the court from finding your testimony inadmissible, it’s important when writing your expert report that the opinions listed are reliable and relevant as well as align with your expertise.

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