Monday, October 17, 2011

Alabama Lodging tax


Case Information:

Docket/Court: CV 09-3607 JSV, Alabama Circuit Court

Date Issued: 03/24/2011

Tax Type(s): Sales and Use Tax



This action for declaratory judgment under Ala. Code (1975) § 6-6-220 et seq., came on to be heard on a joint Motion for Summary Judgment filed by the defendants. The Court heard oral arguments on February 25,2011, and the parties have filed post-hearing submissions.

The plaintiffs are nine Alabama municipalities: Birmingham, Huntsville, Decatur. Auburn, Madison, Anniston, Opelika, Fairhope and Gulf Shores, along with the Birmingham-Jefferson Civic Center Authority. The defendants are sixteen online travel service companies (OTCs), such as Orbitz, Inc.,, Inc., and include most of the nation's major online travel reservation companies.

In their complaint, which was filed on December 11,2009, the plaintiffs allege that they have enacted ordinances which impose a lodgings tax on hotels located within their city limits. This municipal lodging tax is in addition to a State lodging tax. The tax is calculated as a percentage of the amount charged by such hotels for the use of a room.

The plaintiffs seek a Declaration from the Court that the OTCs are engaged in the business of renting rooms or lodgings or furnishing accommodations to transients and that they are subject to and liable for the lodging tax for any rooms that they rent. The defendants deny that they are subject to the tax.

The defendants filed a Rule 12(b)(6) Motion to Dismiss for Failure to State a Claim and, after hearing oral arguments, the Court denied the Motion. The parties were given time to engage in discovery and, after several delays, the case is under submission on the defendants' Motion for Summary Judgment.


These facts are not disputed. The defendants are OTCs that collect and publish travel-related information on the Internet. They make reservations for airline travel, car rentals and hotel rooms. The plaintiffs object to the use of the word “facilitate” in defining the defendant's activities, but the undisputed facts show that that is what they do. They facilitate, or make easier, the making of such reservations. Before these online services were available, customers used their own resources, or a travel agent, to make hotel reservations. Now the customer may go online and obtain the comparative information about lodgings in the area to which he is traveling and the OTC assists the customer in booking a room reservation at the hotel of his/her choice.

When a customer makes a room reservation through the defendants' online service, the customer is charged an amount for the occupancy of the hotel room, a lodging tax recovery charge, and an additional amount which the defendants retain as compensation for their services. The online travel company remits the room rental charge and the tax recovery charge to the hotel, and the hotel then pays the lodging taxes to the State of Alabama and to the appropriate municipality.

In this action the plaintiff cities seek a declaration that the lodging tax should be imposed, not only on the hotels for the amount they charge as rent for the occupancy of their hotel rooms, but also on the amount the defendants charge the customer for their online services.


In 1955, the State of Alabama imposed a state lodgings tax, now codified at Ala. Code (1975) § 40-26-1 et seq. “There is levied and imposed, in addition to all other taxes of every kind now imposed by law, a privilege or license tax upon every person, firm or corporation engaging in the business of renting or furnishing any room or rooms, lodging or accommodations to transients in any hotel, motel, inn, tourist camp, tourist cabin, or any other place in which rooms, lodgings, or accommodations are regularly furnished to transients for a consideration,” as calculated as a percentage “of the charge for such room, rooms, lodgings, or accommodations, including the charge for use or rental of personal property and services furnished in such room.”

In 1969 the Alabama Legislature authorized municipalities to impose a similar tax. Of course, under Alabama's outdated 1901 Constitutional scheme, municipalities do not have the power to tax on their own authority, but only if the power to tax has been granted by the State. City of Mobile v. GSF Properties, Inc., 531 So.2d 833, 836 (Ala. 1988) . “The governing body of any municipality within the State of Alabama may provide by ordinance for the levy and assessment of a privilege or license tax in the nature of a lodgings tax, parallel to the state levy. *****” Ala. Code (1975) § 11-5 l-202(b).

Thereafter, each of the plaintiffs enacted such a lodging tax ordinance. For example, Birmingham's ordinance imposes the tax on “each person... engaging... in the business of renting or furnishing any room *****in any hotel.” The Birmingham tax is imposed on “the charge of such room, rooms, lodgings or accommodations, including the charge for use or rental of personal property and services furnished in such rooms.”

The Alabama Department of Revenue (DOR) has ruled in Alabama Administrative Code, Rule 810-6-5-. 13(5), that only “persons who operate a hotel” are persons who rent or furnish rooms. The Ruling states that the lodging tax is imposed only on “charges made for the use of rooms... by every person who is engaged in the business of renting rooms or lodgings or furnishing accommodations to transients.” Rule 810-6-5-.13(4),

The Alabama Department of Revenue has also determined that online travel service providers are not engaged in the business of renting or furnishing hotel rooms. Therefore, they are not hotel operators and are not obligated to collect and remit the lodging tax on what they charge for their online services. While the opinion of the DOR is not binding on this court, it is persuasive.

The question of law is whether the tax sought by the municipalities is authorized by these statutes, ordinances and rulings.

“In DeKalb County LP Gas Co. v. Suburban Gas, Inc., 729 So.2d 270,275-76 (Ala. 1998) , we explained the process of statutory construction: “In determining the meaning of a statute, this Court looks to the plain meaning of the words as written by the legislature. As we have said:, “Words used in a statute must be given their natural, plain, ordinary, and commonly understood meaning, and where plain language is used a court is bound to interpret that language to mean exactly what it says. If the language of the statute is unambiguous, then there is no room for judicial construction and the clearly expressed intent of the legislature must be given effect.”

Blue Cross & Blue Shield v. Nielsen, 714 So.2d 293,296 (Ala. 1998) (quoting IMED Corp. v. Systems Eng'g Assocs. Corp., 602 So,2 d 344,346 (Ala.1992) ).... It is true that when looking at a statute we might sometimes think that the ramifications of the words are inefficient or unusual However, it is our job to say what the law is, not to say what it should be. Therefore, only if there is no rational way to interpret the words as stated will we look beyond those words to determine legislative intent. To apply a different policy would turn this Court into a legislative body, and doing that, of course, would be utterly inconsistent with the doctrine of separation of powers. See Exparte T.B., 698 So.2d 127,130 (Ala.1997) ,” Exparte Western Life Insurance Co., 899 So.2d 218 (Ala. 2004) .


The plain meaning of the statute and the ordinances is not hidden and it is not ambiguous. The lodgings tax is imposed on every person “engaging in the business of renting or furnishing any rooms, in any hotel.” The tax is fixed as a percentage of “the charge for such room,... including the charge of use or rent of personal property and services furnished in such room.” As required by the statute, the relevant ordinances must contain the same language as in the statute. The ordinance is, as it must be, parallel to the statute.

The plain language of the statute and the plaintiffs' ordinances compel the Court to the conclusion that the defendants in this case are not engaged in the business of renting or furnishing any room or rooms in any hotel. The Alabama Department of Revenue has promulgated a rule affirming that only persons who operate a hotel are persons who rent or furnish rooms. These defendants are not hoteliers. These defendants do not operate a hotel in any of the cities involving in this litigation. They provide a service to the public for which they are compensated by their customers. This compensation is not subject to the lodging tax.

Alabama law is clear that (1) the legislative intent governs statutory construction; (2) to determine such intent, courts must look to the plain and ordinary meaning of the statute; and (3) the Court must look to what the law says, not what either party thinks it should say. In addition, if there were any ambiguity, tax laws must be construed against the taxing authority and in favor of the taxpayer.

It is not a proper function of the courts to rewrite the law, even though it is clear that the State of Alabama and its cities are in desperate need of any revenue they can find. If the Alabama Legislature intends to impose a tax on the service rendered by the OTCs, and if it intends to allow the municipalities to impose such a tax, it may do so by appropriate legislation. The Court is convinced by the undisputed facts that current law does not allow such taxation.

Both sides of this dispute have submitted opinions and orders from various Courts around the country and the Court has read many of those decisions. Some Courts have ruled that the charges for the services rendered by the OTCs were subject to taxation and others have ruled that they were not. The court has not weighed one stack of cases against the other. While some of the Courts simply disagree on the outcome, the various rulings seem to the Court to turn on the specific language of the relevant statutes and ordinances. The specific language of the statutes or ordinances controls the outcome.

The plaintiffs argue that if all else fails, there is a genuine issue of material fact as to whether the defendant OTCs have an agency relationship with the hotel operators and/or with the transient guests. The Court agrees with plaintiffs that the question of agency may be a question of fact for a jury, but here there is no evidence before the Court to support such an allegation of agency.

Counsel for both parties were admitted pro hac vice to participate in this litigation. The case was well briefed and well argued. However, the Court would point out to visiting counsel that it is contrary to the legal culture in this jurisdiction for counsel to make intemperate remarks about their opposition in court filings Such remarks are not helpful to the Court in its search for the truth and are not appreciated.

Upon consideration of the legal and evidentiary submissions, the Court finds that there is no genuine issue of material fact and the defendants are entitled to judgment as a matter of law.

It is therefore Ordered and Adjudged that the defendants' Motion for Summary Judgment is granted. It is hereby declared that the defendants are not engaged in the business of renting rooms or lodgings or furnish accommodations to transients and are therefore not subject to payment of the plaintiffs' lodging tax.

This constitutes a Final Judgment in this case. Costs are taxed to the plaintiffs.

Done and ordered, this the 24 th day of March, 2011.



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