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Expedia, Inc. v. City of New York Department of Finance

New York Court of Appeals

November 21, 2013

Expedia, Inc., et al., Respondents,
v.
City of New York Department of Finance, et al., Appellants. Priceline.com Incorporated, et al., Plaintiffs,

Andrew G. Lipkin, for appellants.

Todd R. Geremia, for respondents.

OPINION

Rivera Judge

The City of New York appeals from an order of the Appellate Division holding Local Law 43, a hotel room occupancy tax applicable to online travel companies, unconstitutional (Expedia, Inc. v City of N.Y. Dept. of Fin., 89 A.D.3d 640 [1st Dept 2011]). Plaintiffs are a group of travel companies that enable customers to make online travel arrangements, including hotel reservations. Plaintiffs claim that the City lacks authority to tax the fees they collect from their customers. The City contends that the State Legislature authorized Local Law 43 through enabling legislation.

We hold that the City had the authority to enact the tax, and the Appellate Division erred when it declared the tax unconstitutional.

I.

State law authorizes New York City to tax the "rent or charge" for hotel room occupancy. The enabling statute provides:

"Notwithstanding any other provision of law to the contrary, any city having a population of one million or more is hereby authorized and empowered to adopt and amend local laws imposing in any such city a tax in addition to any tax authorized and imposed pursuant to article twenty-nine of the tax law such as the legislature has or would have the power and authority to impose on persons occupying hotel rooms in such city."

(CLS Uncons Laws of NY, ch 288-C, § 1 [1]). This statute allows the City to tax up to six percent "of the rent or charge per day" for each hotel room (CLS Uncons Laws of NY, ch 288-c, § 1 [1-a]). The statute authorizes the City to collect these taxes from the hotel operator or any "person entitled to be paid the rent or charge for the hotel room" (CLS Uncons Laws of NY, ch 288-c, § 1 [3]). Under this enabling statute, the City has taxed hotel rent since 1970, charging hotel operators based on the daily rent charged (see Local Law No. 15 [1970] of City of New York § 1).

In 2009, the New York City Council amended its hotel occupancy tax to capture revenue from fees charged to customers as rent by third party travel companies, known under the law as "room remarketers" (Local Law No. 43 [2009] of City of New York § 1). Local Law 43 defined "rent" as:

"[t]he consideration received for occupancy valued in money, whether received in money or otherwise, including all receipts, cash, credits, and property or services of any kind or nature, including any service and/or booking fees that are a condition of occupancy [.]"

(id. [emphasis added]). Thus, Local Law 43 taxed the total rent or charge paid by a hotel occupant, including sums paid directly to third parties. [1]

Plaintiffs are travel companies taxed as "room remarketers" under Local Law 43. They brought a declaratory judgment action in Supreme Court challenging the constitutionality of the tax. Alternatively, plaintiffs argued that the law did not apply to them because their service fees are not "rent" within the meaning of the state enabling legislation.

Supreme Court granted the City's motion to dismiss the first cause of action challenging the facial constitutionality of the law. The court determined that the plain language ...


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