City gives OK on lawsuit

A Newport Beach official said Wednesday Internet travel booking companies could owe the city as much as $13.6 million in tax money on hotel rooms booked online since 2001.

“I think it’s a lot of money, and I think it’s important for a couple of reasons,” said Newport Beach Revenue Manager Glen Everroad.

The city could stand to gain $9.5 million after legal costs from a possible lawsuit against 15 Internet travel booking companies including Travelocity and Expedia, Everroad said. City officials say the companies cheat the city out of local transient occupancy taxes when they charge for rooms based on an inflated price, but the tax that cities and hotels receive is based on a lower rate.

About 18% of local transient occupancy taxes go to fund the Newport Beach Conference and Visitors Bureau, and the rest goes into the city’s general fund for things like police and fire service, Everroad said.

How much money the city could claim depends on if and when the city files a lawsuit against the companies, because state laws restrict how many years back a city can recover tax money, Everroad said.

The Newport Beach City Council authorized the Los Angeles-based law firm Kiesel, Boucher & Larson to gather information on allegedly lost tax revenue from online travel-booking companies Tuesday in a closed session.

The city will first try to recover the money through administrative process with the help of Kiesel, Boucher & Larson. Such action would probably include assessing a concrete dollar amount on the allegedly bilked tax money and billing the companies.

Newport Beach has already joined a class action lawsuit against 15 of some of the biggest Internet travel companies, but the courts have not made a ruling yet on whether the suit is valid. The suit, filed in December 2004 by the city of Los Angeles, claims the travel booking companies shortchange cities on the transient occupancy tax they pay for booking rooms.

The council’s decision Tuesday could be the first step for filing its own lawsuit against the companies, Everroad said.

Several similar lawsuits have been dismissed or voluntarily dropped, said Art Sackler, director of the Interactive Travel Services Assn., a group that represents many online travel companies.

Sacker called transient occupancy tax lawsuits, filed by municipalities across the country ranging from San Antonio, Texas, to Chicago, “a misunderstanding of the business model.”

“They don’t understand how the business model works, they’re suing first and asking questions later,” Sackler said.

Hotels report their local tax rates to the company and are responsible for giving the right amount back to their municipalities, Sackler said. Internet travel booking sites provide a service to the community because they help promote local tourism and direct consumers to locally owned hotels, Sackler said.

“It’s a win-win-win situation: The tourists win, the hotels win and the city wins,” he said. “They want to turn it into lose-lose-lose.”

BRIANNA BAILEY may be reached at (714) 966-4625 or at brianna.bailey@latimes.com.