Judge dismisses cities' lawsuit over hotel taxes

U.S. District Judge Thomas B. Russell on Tuesday said the city and state hotel tax laws are outdated and don't cover online hotel brokers. The cities and state have amended their hotel taxes several times in recent years, but didn't address online hotel brokers, Russell said.

If the cities want to collect the taxes, they are free to amend their ordinances, Russell said.

He wrote that the online brokers "were truly creatures of the future at the time the statute and ordinance originally were enacted," and added, "The Court will not now step in to do what the state and local legislative bodies--both of whom can be expected to be fully aware of their legislative forebears--either failed or chose not to do."

The city of Louisville two years ago sued hundreds of Web sites that rent discount hotel rooms, accusing the online travel companies of not paying taxes on the rooms rented. Defendants included Orbitz, Hotwire, Expedia and Travelocity, among others.

Lexington joined the lawsuit, asking Russell to award an unspecified amount from the online travel companies to the two municipalities and to the 24 cities and 25 Kentucky counties that have hotel taxes.

Bill Patteson, a spokesman for the Jefferson County Attorney's Office, called the ruling disappointing and said the city plans to appeal. Susan Straub, a spokeswoman for Lexington Mayor Jim Newberry, declined immediate comment.

E-mail messages sent to several travel company Web sites were not immediately returned. In other, similar lawsuits, the companies denied any wrongdoing.

The online travel companies negotiate room rates with hotels in different cities. The lawsuit cited an example in which Hotels.com collected $100 from someone reserving a room in Louisville through the Web site.

The Web site reserved the room at the lower rate of $70 a night, the lawsuit said. Because the person paid $100 for the room, the lawsuit asserted, the transient tax due the city would be $7.50, but the travel company is only paying the city $5.25.