The state Supreme Court on Thursday upheld a circuit judge’s decision to grant class-action status to a lawsuit alleging that online travel companies are not paying their fair share of taxes to cities and counties.
The high court issued the ruling in a lawsuit filed by the Pine Bluff Advertising and Promotion Commission and the city of North Little Rock on behalf of all similarly situated commissions, cities and counties.
The suit alleges that Hotels.com, Expedia, Orbitz, Travelocity and other similar companies typically acquire rooms from hotels at discounted rates, then charge higher rates to customer who book rooms through the companies’ websites and collect taxes from the customers based on those higher rates. The companies then pay cities and counties taxes based on the lower, discounted rates and pocket the difference in violation of Arkansas law, the plaintiffs claim.
In oral arguments before the Supreme Court last week, an attorney for the companies argued that the plaintiffs should have been required to exhaust every administrative remedy before taking the companies to court and that every A&P commission, city and county with a complaint should make its case separately.
Arkansas’ highest court rejected the argument in a unanimous decision Thursday.
"This court requires exhaustion of administrative remedies before resorting to an action for declaratory judgment," Justice Paul Danielson wrote in the opinion. "In this case, however, it is evident that there was no adequate administrative remedy available."
The companies argued that under the Arkansas Tax Procedure Act, tax complaints must be made to the state Department of Finance and Administration.
The court said Thursday the act "provides a remedy solely to a taxpayer" and not to an A&P commission, city or county.
The companies also argued that many differences exist between hotel-tax ordinances across the state, so different entities would have different claims and therefore class-action status is not appropriate.
The Supreme Court said that while individual ordinances may vary, they all are derived from the same state laws allowing the levying of hotel taxes. The question of whether the companies’ practices are subject to those laws is "an overarching issue," the court said.
"As we have said time and time again, the mere fact that individual issues or defenses may be raised regarding the recovery of individual class members cannot defeat class certification where there are common questions that must be resolved for call class members," Danielson wrote in the opinion.