Priceline.com v. Fitch

376 So.3d 1185

PRICELINE.COM, LLC, Priceline.com Incorporated n/k/a Booking Holdings, Inc., Travelweb LLC, Trip Network, Inc. d/b/a Cheaptickets.com, Orbitz, LLC, Hotels.com, L.P., Expedia, Inc., Hotwire, Inc., TVL LP f/ka Travelocity.com LP, Site59.Com, LLC

v.Lynn FITCH, Attorney General of the State of Mississippi ex rel. State of Mississippi

NO. 2021-CA-00868-SCT

Supreme Court of Mississippi.

09/28/2023

HINDS COUNTY CHANCERY COURT, HON. DENISE OWENS, JUDGE

ATTORNEYS FOR APPELLANTS: KYLE V. MILLER, Ridgeland, ANNE MARIE SEIBEL, TIFFANY DEGRUY, MARGARET CUPPLES, MICHAEL BENTLEY, Jackson, SCOTT R. WIEHLE, JEFFREY A. ROSSMAN

ATTORNEYS FOR APPELLEE: OFFICE OF THE ATTORNEY GENERAL, BY: HART MARTIN, JUSTIN L. MATHENY, Jackson, JOHN W. CRONGEYER, DON BARRETT, Lexington, DAVID McMULLAN, JR., SARAH STERLING ALDRIDGE, ROBERT K. FINNEL, WILLIAM Q. BIRD, ALEXANDRIA E. SEAY

EN BANC.

CHAMBERLIN, JUSTICE, FOR THE COURT:

¶1. This case hinges on whether Online Travel Companies (OTCs) are encompassed by the definition of hotels found in Mississippi Code Section 41-49-3 (Rev. 2023) and are therefore subject to the tax levied against hotels in Mississippi Code Section 27-65-23 (Rev. 2017). The chancery court found that the tax was a broad transaction tax that encompassed the OTCs. The chancery court granted partial summary judgment in favor of the State on the issue of liability, rendering the OTCs liable for more than $10 million in past due taxes. The trial court further found that the OTCs had acted willfully and knowingly and in intentional disregard and assessed penalties and interest for a total judgment of more than $50 million. This Court finds that the OTCs are not hotels as contemplated by Section 41-49-3. Therefore, this Court reverses the trial court’s grant of partial summary judgment in favor of the State on the issue of liability and renders judgment in favor of the OTCs.

FACTS AND PROCEDURAL HISTORY

¶2. Priceline.com, LLC, Priceline.com Inc. N/K/A Booking Holdings, Inc., Travelweb LLC, Trip Network, Inc. D/B/A Cheaptickets.com, Orbitz, LLC, Hotels.com, L.P., Expedia, Inc., Hotwire, Inc., TVL LP F/K/A Travelocity.com LP, and Site59.com, LLC (collectively, the OTCs) are technology companies that operate "websites that enable travelers to research destinations, comparison shop, plan trips, and request reservations from airlines, hotels, and rental car companies." The OTCs have been subject to nationwide litigation by states and local governments for their alleged underpayment of taxes.

¶3. The OTCs provide their services primarily through two business models: the merchant model and the agency model.¹ Merchant model transactions are at issue in this case. In merchant model, transactions, the OTC acts as the merchant of record and "facilitates the booking of hotel rooms, airline seats, car rentals and destination services" from the travel suppliers. The OTCs facilitate reservations for consumers at lower rates (called "net rates") than hotels advertise to the public.² When facilitating reservations, the merchant model allows the OTCs to have latitude to establish the prices charged to consumers (as compared to agency transactions) and enables the OTCs to achieve a higher level of net revenues per transaction.

¶4. Under the merchant model, when a consumer books a room through an OTC, the OTC, charges the consumer’s credit card at the time the hotel issues a reservation. There are two line items for the displayed charges. The first is a "Nightly Rate" or "Room Rate" that consists of: 1) the hotel’s charge for the room (the "net rate") plus 2) the OTCs "margin" or "facilitation fee" for facilitating the reservation. The second line is labeled "taxes and fees" or "tax recovery charge and service fees" and consists of: 1) a "tax recovery charge" to cover the estimated taxes the hotel will owe on its net rate plus 2) a "processing service fee" that the OTC retains as compensation for processing the reservations through its system. The service fee charged by the OTC and the tax recovery charge are not specifically itemized to the consumer but are presented as a combined amount. The OTCs state that this amount is displayed to the consumer as combined in order "to maintain the confidentiality of the hotel’s net rate, which is required under the contracts between the OTCs and the hotels."

¶5. The tax recovery charge is calculated by multiplying the applicable tax rate by the hotel’s net rate. The contractual agreements between the hotels and the OTCs provide that the OTCs will collect the amounts for applicable taxes from the consumers. If the consumer does not cancel the reservation, the hotel later collects from the OTC the net rate and taxes on the net rate and remits to the appropriate tax authorities taxes owed on the net rate.

¶6. In a small number of transactions, called "breakage" transactions, the total amount that the OTC expected to forward to the hotel does not match the total amount actually collected by the hotel. Therefore, the OTC sometimes retains a portion of the net rate or tax recovery charge. Reasons why breakage transactions occur are:

In some instances, the OTC may have paid hotels in lump sums covering multiple reservations, and those payments may not have been tracked or accounted for on a reservation-by-reservation basis. In other instances, travelers mayhave shortened their stays or not appeared at all. And in still other instances, the hotel may have made a clerical error.

¶7. On December 29, 2011, the State of Mississippi filed a complaint against the OTCs and alleged that the OTCs had failed and continued to fail to remit the full and proper amounts of taxes imposed under Mississippi’s Sales Tax Law. See Miss. Code Ann, §§ 27-65-1 to -111 (Rev. 2017). The State alleged that the OTCs were required to collect and remit 7 percent sales tax for each retail rental of a hotel room to consumers based on the gross amount paid by the consumer, as opposed to the net rate. The State further alleged that the OTCs had been unlawfully keeping taxes collected under the authority of local and private law. The State sought declaratory judgment and injunctive relief and alleged violations of the Mississippi Sales Tax Law and local tax laws, conversion, unjust enrichment, assumpsit for money had and received, joint enterprise liability, violations of Mississippi’s Consumer Protection Act, and imposition of a constructive trust. The State additionally asked for damages in the form of penalties, interest, and attorneys’ fees and requested punitive damages.

¶8. On March 23, 2012, the OTCs filed a motion to dismiss the complaint for failure to state a claim or, in the alternative, for a more definite statement. On September 20, 2012, the trial court granted in part and denied in part the OTCs’ motion. The trial court denied the OTCs’ requests to dismiss each of the State’s claims but minimally granted the OTCs’ request for a more definite statement as it related to the specific local taxes the State alleged that the Defendants had not paid.

¶9. On August 30, 2018, the OTCs filed a motion for involuntary dismissal for failure to prosecute. The OTCs argued that the State had taken no action in the litigation since February 2015 and was, therefore, subject to dismissal under Mississippi Rule of Civil Procedure 41(b).

¶10. The State filed its Motion for Partial Summary Judgment on the Issue of Liability on September 7, 2018. The State requested partial summary judgment as to the liability of the OTCs under the Mississippi Sales Tax Law and local hotel sales tax laws, as well as under theories of conversion, unjust enrichment, and assumpsit for monies had and received. The State argued that the OTCs had failed to remit sales taxes equal to 7 percent of the gross income derived from the rental of hotel rooms and had failed to adhere to the similar requirements of local government hotel tax laws.

¶11. The OTCs filed a cross-motion for summary judgment on November 9, 2018. The OTCs argued that, because they were not hotels, the tax statutes did not apply to them. They additionally argued that the common law claims rested on the false assumption that the tax statutes applied.

¶12. On November 19, 2018, the parties entered into an agreed order in which the State stipulated "that its claims under the Sales Tax and Local Hotel Taxes for non-breakage transactions are limited to the recovery of said taxes on only the OTCs’ markup and fees. The State’s claims under the Sales Tax and Local Hotel Taxes for breakage transactions also seek the recovery of said taxes on the net rate collected by the OTCs."

¶13. On December 12, 2018, the trial court denied the OTCs’ motion for involuntary dismissal for failure to prosecute. On July 2, 2019, the trial court granted the State’s motion for partial summary judgment on liability on all counts, finding that the "OTCs’ failure to remit taxes of online sales of Mississippi hotel rooms owed under both the Mississippi Sales Tax Law, local hotel sales tax laws, and the actions of the OTCs (via breakage) of conversion, unjust enrichment, and assumpsit for monies had and received, resulted in loss of money to the State resulting in damages to the State." The trial court denied the OTCs’ cross-motion for summary judgment.

¶14. The trial court later issued an amended judgment that corrected its prior ruling by omitting language that referred to a stipulation by the parties. The trial court then granted the State’s motion to compel the OTCs to produce updated transaction data.

¶15. The OTCs produced updated transaction data to the State on November 13, 2019. The OTCs filed a Petition for Interlocutory Appeal by Permission with this Court. On November 22, 2019, the OTCs filed in this Court a motion to stay all trial proceedings pending the disposition of its petition for interlocutory appeal. This Court denied the petition for interlocutory appeal and dismissed as moot the motion to stay trial court...