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Federal Court Issues Findings in Closely Watched Texas Hotel Tax Lawsuit

July 6, 2011

SAN ANTONIO – A San Antonio federal judge has issued findings of fact and conclusions of law following the nation’s first jury verdict against online travel companies over unpaid hotel occupancy taxes.

Judge Orlando Garcia of the U.S. District Court for the Western District of Texas in San Antonio presided over the trial won by the City of San Antonio and 172 additional Texas cities. Jurors in the 2009 trial awarded the cities almost $20 million against a group of 11 defendants, including Expedia.com, Hotels.com, Hotwire.com, Priceline.com, Travelocity.com, Orbitz.com, and others.

The City of San Antonio and the other Texas cities were represented by attorneys from McKool Smith, including lead counsel Gary Cruciani and Steven Wolens, fellow firm principals Tom Graves and Rosemary Snider, and firm associate Michael Fritz. Co-counsel for the cities included San Antonio attorneys Frank Herrera and Trey Martinez Fischer, and the Dallas law firms Baron & Budd and Diamond McCarthy.

In the findings issued July 1, 2011, Judge Garcia held that the defendant companies are obligated under the cities’ hotel tax ordinances to collect and pay hotel occupancy taxes on the total amount that hotel guests pay for rooms. Contrary to this requirement, the online travel companies have remitted taxes on the lower “wholesale” rate that they pay hotels for the right to sell rooms rather than the higher “retail” rate that online travel companies charge hotel guests. As a result of this practice, the court found that “virtually every transaction resulted in underpayment of the hotel occupancy tax.”

In addition to affirming the jury’s award of almost $20 million in actual damages through the date of trial, Judge Garcia also found that the cities were entitled to additional actual damages that have continued to accrue since the 2009 verdict, plus penalties and interest. The court also ordered that the online travel companies must devise a system within six months from the date a judgment is entered in order to report the amount of hotel occupancy taxes that are paid to individual cities in the future.

McKool Smith also represents multiple cities and state and local governments outside Texas in similar claims, including the California cities of San Francisco, San Diego, and Anaheim, and the Florida counties of Broward and Osceola, among others.

With more than 130 litigators working as an integrated team across offices in New York, Washington, D.C. and Texas, McKool Smith has established a reputation as one of America’s leading trial firms. The firm has been recognized by The National Law Journal and VerdictSearch for winning more Top 100 verdicts than any other U.S. law firm during the past three years. McKool Smith represents leading clients across a broad range of practice areas, including complex commercial litigation, intellectual property, bankruptcy, and white collar defense.