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Expedia Hit With Second Class Action Loss

Company faces continuing litigation related to sales tax

By Jon Hood
ConsumerAffairs.Com

June 17, 2009

• Air travel • Hotels • Vacation packages --- News • Expedia Ordered to Reimburse Extra Tax Charged to Consumers

Expedia is reeling from its second class-action loss in a month, after the Georgia Supreme Court ordered the popular travel reservations website to pay an undetermined amount to the city of Columbus, Georgia.

The suit alleged that, while Columbus hotels charged taxes based on a room's wholesale value, Expedia collected taxes calculated according to the retail price of the room, and pocketed the difference. The exact amount owed by Expedia will be determined by a trial court.

The city's argument was the same one asserted in a successful class action settled earlier this month in Washington state. There, plaintiff consumers alleged that the difference between retail- and wholesale-based taxes were disguised as part of a "service fee," included in the same billing line as the taxes themselves.

That suit was ultimately resolved when Judge Monica Benton of the King County Superior Court ordered Expedia to pay $184 million to consumers who purchased tickets between Feb. 18, 2003 and Dec. 11, 2006. The suit contained a number of embarrassing revelations for the travel conglomerate, including a 2001 e-mail predicting that the service charge would "add between $2-3 million in our net profit (the bottom line) next quarter."

Expedia is filing a motion to reconsider the Georgia ruling and, if that proves unsuccessful, has already announced that it will appeal the decision.

Even if its subsequent efforts prove successful, the company may not be out of the woods. Still pending are similar suits brought by 175 municipalities in Texas, and the Georgia cities of Atlanta and Rome. The ruling also did not address whether Expedia will be forced to pay back taxes, an issue that could come back to haunt the company in future suits. And other travel-oriented sites should think twice before deciding to rest easy; Columbus, the victor in the most recent suit, is also suing Orbitz Worldwide and Hotels.com.

Atlanta, smelling blood in the water ahead of its own suit's resolution, issued a statement calling the ruling "a very positive development." In case it wasn't clear enough, the city added that the ruling "validates the positions that [Atlanta] has taken in its lawsuit." C. Neal Pope, an attorney representing Columbus, called the ruling "a severe blow" to Expedia.

Expedia, headquartered in Bellevue, Washington, was founded as part of Microsoft in 1996 and struck out on its own three years later. The company counts itself among the S&P 500 and NASDAQ 100.

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