Hotel taxes make online comparison shopping tricky

— -- How many times have you surfed from site to site in search of a hotel room, and stopped when the results page posted a low rate? Unless you've clicked through and determined the final charges, you really haven't comparison shopped at all.

In yet another example of the mysteries that occur behind the screen, many major travel sites charge you booking fees when you use them to reserve a room. Now in principle, there's nothing wrong with being levied a fee for such services. But the lack of transparency about such charges—and the manner in which they're bundled into "taxes"—has set off a multi-million-dollar firestorm that could transform how hotel rooms are booked online.

Let the lawsuits begin

We all know a hotel bill includes a complex list of taxes and occupancy surcharges. But how such payments are collected and processed by third-party travel sites has come under close scrutiny. As noted on this site several months ago, online travel agencies have been facing lawsuits from municipalities across the country, which claim these cities have been cheated out of tens of millions of dollars in hotel and occupancy taxes. Some reports estimate the number of cities has reached 200 and the list includes such major destinations as Atlanta, Chicago, Los Angeles, Miami and Philadelphia.

In essence, these municipalities claim they receive taxes from travel sites based on the wholesale rates the sites pay for the rooms, not the higher retail rates the sites charge consumers—and that gap can equal millions for many local governments. Earlier this month, for example, an administrative hearing officer awarded the City of Anaheim $21.3 million in back taxes, interest, and penalties from Expedia, Orbitz, Priceline, and Travelocity. Anaheim Mayor Curt Pringle explains, "The issue at hand is full reimbursement of the taxes collected. There is no reason why online travel companies should be paying a different amount of taxes than others who book the same hotel rooms."

Fighting such charges is the Interactive Travel Services Association (ITSA), a trade group that represents Expedia, Hotels.com, Hotwire, Orbitz, Priceline, Travelocity and other online travel companies. Art Sackler, ITSA's executive director, argues that "Since they do not manage or operate hotels, motels, or other lodging establishments, the online travel companies are not liable for occupancy taxes on the reservation services they provide to the local tourism industries."

So how does this battle among government agencies and corporate titans affect you? Recently I filed a story for Consumer Reports that detailed a class-action lawsuit filed against Expedia in King County, Wash. The central topic of taxation is once again the issue, only this case focuses on travelers rather than municipalities. This particular suit alleges Expedia "breached its contractual obligations by charging excessive amounts in its bundled 'Tax Recovery Charges' and 'Service Fees'," primarily in "stand-alone" hotel bookings but in some cases with bundled packages as well.

Among those eligible to participate in this suit are all consumers who booked a hotel stay between Jan. 10, 2001, and June 11, 2008, through Expedia—either online or via the site's telephone reservations system. Obviously the list of those affected could swell by thousands as publicity increases about the trial that has been set for this July; you can learn more at hbsslaw.com/expedia. Expedia will not comment on pending litigation, but said it will continue to "vigorously defend against the lawsuits."