Christina Estes/KJZZ

Scottsdale City Hall.

The city of Scottsdale is preparing for another legal round against the online travel industry. Scottsdale and other cities across the country have been trying to force travel websites to pay taxes they say are owed to local governments.  

Like many cities, Scottsdale has what’s known as a bed or lodging tax. It’s an extra tax on a hotel room. In Scottsdale it’s 5 percent. For example, if you book a room directly with a hotel for $100, the 5 percent bed tax would be $5.

If you book that room through an online travel site, such as Expedia or Travelocity, you might pay a lower rate, but you will also pay a service fee.

Scottsdale argues these sites are booking hotel rooms and so the total amount you pay should be taxed. If the city wins its current case against the online travel industry, Scottsdale predicts it will collect approximately $2.4 million.

According to the Travel Technology Association which represents sites including Hotwire, Orbitz and others, there have been dozens of cases with the overwhelmingly majority ruling in their favor.

Steve Shur, the association’s president, said hotel taxes are for hotel operators and that does not include online travel sites.

“They don’t check in guests or provide room service,” he said. “They are travel agents that connect consumers with the people who operate hotels.”   

Shur said if Scottsdale wins this court battle it will generate more money in the short term, but he thinks the area will lose visitors in the long run.

“An environment where there’s lawsuits and there’s legislation and there’s local regulations that seek to tax the service fees of travel agents, it sends a message to travel agents that the cities or the region are not interested in doing business with them,” Shur said. 

When asked if they will steer traffic outside of Arizona, Shur said, “That’s a likely outcome, absolutely.”  

During Tuesday’s city council meeting, Scottsdale members will be asked to appeal the case if needed. According to a city council report, the latest ruling determined online travel companies' business activities in booking hotels and other rentals are taxable.

The report continues: “However, the Court further ruled that because this application of the tax code was new, the tax owed could only be collected prospectively and no tax would be owed during the previous audit period.”

Scottsdale was unable to provide a representative to discuss the issue with KJZZ. A spokesperson said all the information Scottsdale is releasing publicly is in the council report. The report says city staff disagrees that its position is new and recommends the city appeal this portion of the court’s judgment.

An outside legal firm has agreed to take the case at no cost if the city loses. If the city wins the firm will receive 27 percent of any funds collected.