Hotel tax lawsuit nears end

The travel website Expedia will pay more than $2.2 million of the $3.5 million legal settlement with North Charleston, Charleston County and two other plaintiffs.

As tax season enters the home stretch, a couple of local governments are anticipating some hefty refunds.

Not from the IRS, though.

The city of North Charleston and Charleston County stand to collect more than half of a seven-figure legal settlement with a long list of travel websites, most of them owned and operated by Expedia, Priceline, Travelocity and Orbitz.

It’s the latest turn in a long-running nationwide dispute over hospitality taxes that many municipalities charge hotels and, in turn, their guests.

The issue first reared its head about a decade ago, when cash-strapped local and state governments felt they were being short-changed by Web-based travel sites. It centered on the industry’s standard practice of reserving blocks of hotel rooms at discounted rates and then reselling them one by one at a profit.

The lawsuits began to fly when tax officials discovered that the booking businesses were basing their remittances, if they were remitting them at all, on the lower prices. The online firms have argued that only the wholesale rate they negotiate with hotels is taxable.

The spreads don’t amount to much on a single booking, but they sure add up. An analysis this year by BloombergBusiness estimated that Expedia could be on the hook for an $847 million retroactive tax bill — that is, in the highly unlikely event it loses all of the legal challenges it’s still facing.

The S.C. Supreme Court already has weighed in on the issue in a 2011 decision that sent a chill across the online travel landscape. It upheld a previous legal ruling and ordered Expedia subsidiary Travelscape in 2011 to pay more than $6.3 million in sales taxes for Internet hotel bookings it had brokered within the state.

Charleston and Mount Pleasant also have gone to the mat over the accommodations money in a court case they filed with North Myrtle Beach. Their 2006 lawsuit was settled for $900,000 about three years ago. Of that, Charleston pocketed $657,000, and Mount Pleasant was paid $50,000.

North Charleston, which charges hotels a 2 percent room tax, brought its own challenge in mid-2013 with Columbia and Aiken County. Charleston County joined in later. Circuit Judge R. Markley Dennis approved class-action status for the complaint in February.

The original lawsuit didn’t say how much money was at stake. Described as a compromise to avoid further litigation, the $3.5 million settlement figure was reached after two mediation sessions and an analysis of hotel transactions by forensic accountants at Dixon Hughes Goodman.

After the plaintiffs’ attorneys are paid their requested 25 percent cut and reimbursed about $97,000 for expenses, about $2.49 million will be left for everyone else, assuming the deal is approved. The pot would be divided up among 23 counties and nearly 50 cities and towns all over South Carolina, unless they opt out of the settlement.

Of the four main plaintiffs, Charleston County is poised to cash the biggest check, almost $1.16 million. North Charleston will collect about $240,600. Columbia and Aiken County are expecting to recover $303,689 and $8,431, respectively.

The other South Carolina government bodies were added to the class because they hadn’t previously brought their own lawsuits, said Charleston attorney Jesse Kirchner, who helped file the case. Their proposed payments from the travel websites range from about $67,953 for Richland County to just $16.39 for tiny Westminster, in Oconee County.

The settlement is up for approval at a fairness hearing this week in the heart of downtown Charleston, the land of many a hotel room.

Contact John McDermott at 937-5572