When Joseph Church used the internet to book a hotel room at the Hyatt Regency for a two-night family vacation in Orlando, Florida, he paid $108.68 in taxes and fees. The South Carolina resident believes so strongly that $38.71 was falsely charged that he filed a class action complaint, alleging that illegal taxes and fees are being applied to every transaction booked through Reservations.com that uses Expedia’s room inventory.
“The tax overcharge practice occurs throughout the United States and testing based on information on the Reservations.com website reveal that the tax overcharge practice is widespread,” said Steve W. Berman in Mr. Church’s December 17 complaint filed in District Court for the Western District of Washington.
Church v. Expedia Inc et al asks the federal court to assume jurisdiction under the RICO Act, 18 U.S.C. § 1962, which outlaws receiving income derived, directly or indirectly, from a pattern of criminality.
“The hotel room bookings are legitimate transactions,” said Mr. Berman. “However, Expedia and its co-conspirators, through their illegal Tax Fraud Enterprise, engaged in a pattern of racketeering activity, which involves a fraudulent scheme to increase revenue for Expedia and the other entities and individuals associated-in-fact with the Enterprise’s activities through the illegal scheme to collect tax overpayments.”
Expedia didn’t respond to PacerMonitor News’ request for comment.
“The portals are hiding the true amounts of money charged by Expedia.com, Reservations.com, their agents and subsidiaries,” said Taso Pardalis, an attorney in Manhattan.
Mr. Church isn’t the only consumer who’s noticed. Some 60% of complaints lodged with the nonprofit Elliott Advocacy are travel cases in which individuals believe they are being overcharged for some kind of tax or fee.
“People have long suspected that they are being overcharged, but it’s not unique to travel,” said Christopher Elliott, founder of Elliott Advocacy. “We all have only the company’s word to go by that they are charging you the correct taxes unless you whip out a calculator, but people don’t typically do that.”
According to Church v. Expedia, four million rooms have been booked for two million customers from January 2014 to the present. At $38.71 per transaction, the defendants could be required to refund some $77 million or more to consumers.
“He could also collect millions of dollars in legal fees with treble damages on the plaintiff’s civil tax fraud enterprise RICO claims,” Mr. Pardalis told PacerMonitor News.
Ultimately, these allegations could potentially lead to criminal indictments and prosecutions against Expedia and its subsidiaries in various federal courts.
“It does look suspicious, and we do need some transparency,” said Mr. Elliott. “It’s obvious that the online travel agency websites are not too terribly interested in providing that transparency.”
That’s because the federal government hasn’t outlawed so-called Drip pricing and only requires online retailers to disclose a total price at the end of a transaction. Drip pricing is a technique that allows online retailers to reveal merely a portion of the price and disclose other fees incrementally as the customer advances through the purchasing process.
Daniel Shahar filed a similar lawsuit against Expedia and its Hotwire unit in 2012 for a five-day rental that was to cost $70 but had an additional $80 charge when he arrived to pick up the car.
“Because Shahar had already pre-paid $70 and was stuck at a car rental agency in a foreign country, he had no choice but to pay more than the contracted amount,” said his attorney Michael A. Caddell in Mr. Shahar’s complaint filed in California Northern District Court.
Shahar v Hotwire, Inc. et al was settled by agreement, and all claims and parties released but it is unclear how Church v. Expedia could potentially be affected by the settlement except that internet travel companies like Expedia may be more inclined to take action that helps them avoid litigation.
“They may be more motivated to accurately disclose their taxes and fees in commercial agreements because the Hotwire class action settlement was costly to the defendants and also resulted in an award of significant counsel fees,” Mr. Pardalis said.
It’s not only consumers that would like details on the markups that online travel agencies impose on wholesale rates obtained from hotels or rental cars.
The City of Oakland alleges in its California Northern District Court lawsuit against 10 internet travel companies that hotel occupancy taxes were fraudulently pocketed in violation of their Transient Occupancy Tax Ordinance.
“Defendants collect a greater amount in Transient Taxes from the general public than is remitted to the Plaintiff,” wrote the City of Oakland’s attorney James C. Sturdevant. “Defendants do not delineate to the general public the amounts being paid for each specific tax and the amounts, if any, being paid separately as service fees.”
Expedia, Travelocity, Orbitz and Priceline were among those named in the City of Oakland complaint.
“There is a wholesale rate that companies like Expedia are paying taxes on, but they’re potentially charging the consumer a retail rate on the taxes and there’s probably a difference in cost between the taxes that Expedia may pay and what the consumer is assessed by companies like Expedia,” Mr. Elliott told PacerMonitor News.
Only the courts and laws applied by local taxing authorities of different states can trump the FTC’s permissible position on Drip pricing.
“If Mr. Church is successful, consumers can look forward to Reservations.com, Expedia.com and other travel websites properly disclosing their tax recovery charges and fees online based on proper local state and federal occupancy taxes,” said Mr. Pardalis.
Until then, a calculator may be handy when making travel arrangements online.