New York Court Finds Increase of Occupancy Tax on Online Travel Companies Improperly Implemented
Ashok Chandra | Bloomberg Law
The Appellate Division of the Supreme Court of New York determined that a tax increase implemented by New York City’s Department of Finance on online travel companies was not valid. The court observed that the enabling statute only allowed for a tax increase on hotel occupants and not travel agencies.
Plaintiffs, including Expedia, Inc. and other online travel companies commenced an action against New York City’s Department of Finance, challenging the constitutionality of Local Law 43, which amended New York City’s Administrative Code § 11-2501 to have the existing hotel room occupancy tax “include imposition of the tax on the service or booking fees earned by plaintiffs in connection with hotel room reservations.” Expedia at 1. Plaintiffs contended that defendants did not have the authority to expand the occupancy tax. The court noted that the “enabling legislation authorized the City of New York to impose on a hotel occupant a tax at a rate of up to six percent of the rent or charge per day for each hotel room.” Id. The court determined that the language of the enabling legislation did not confer upon the City broad taxation powers with regard to imposing a hotel occupancy tax on the plaintiffs. Rather, the court observed that the language of the enabling statute specifically only allowed the city to expand the tax with regard to hotel occupants. The court observed that a statute that levies a tax “must be narrowly construed” and “any doubts concerning its scope and application are to be resolved in favor of the taxpayer”Debevoise & Plimpton v New York State Dept. of Taxation & Fin., 80 N.Y.2d 657, 661 (1993). The court noted that the plain meaning of the phrase in the enabling statute did not encompass the service fees charged by the online travel companies and it was improper for legislation to be extended so as to permit the imposition of the tax in this situation.
The court observed that in order to extend the tax to cover online travel companies, the state legislature would have to take action.
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