Expedia, Inc. is an online travel company OTC which books hotel rooms and makes other travel arrangements for customers who access its services over the internet. Expedia’s main business model, known as the “merchant model,” is to contract with hotels for the right to broker or facilitate the reservation of hotel rooms at a discount or “wholesale rate.” Expedia then advertises and offers the rooms for sale to the public on its website. When a customer purchases a hotel room reservation from Expedia, Expedia charges the customer an amount that is greater than the wholesale rate. This “marked-up” amount is the “room rate.” Although Expedia states that the room rate is a combination of the wholesale rate and its facilitation fee, it does not disclose to the public which portion of the “room rate” is for its facilitation fee. Expedia also does not disclose to the hotel the amount of the room rate charged to Expedia’s customers.1 Expedia provides in its contracts with hotels that it “shall collect all applicable taxes from its customers.” Thus, at the time a reservation is made, Expedia notifies the customer that it is collecting a certain amount of money for “taxes and service fees.” Expedia does not disclose to the customer which portion of the “taxes and service fees” is for “taxes” or which portion is for “service fees.” At the end of the transaction, the customer pays Expedia directly in a total amount that equals the “room rate” plus “taxes and service fees.”
Upon checking into the hotel, the customer does not pay the hotel any money for the room or any fees or taxes, but only provides a credit card for incidentals. After the customer has completed his hotel stay, the hotel is required to send Expedia an invoice for the wholesale rate and the occupancy taxes based on the wholesale rate. Upon receipt of the invoice, Expedia remits the payment to the hotel which pays the taxes to the municipal tax authority. Under Expedia’s merchant model method of conducting business, the hotel occupancy tax amount is calculated based on the wholesale rate Expedia negotiates with hotels. Expedia retains whatever it has collected over the amount of the remittance to the hotel. If the hotel fails to submit an invoice to Expedia in the time period designated by contract, then Expedia retains all monies collected from the customer, including any money purportedly collected for taxes.
