City of Milpitas is contemplating litigation against as yet unnamed online travel providers to recover supposedly unpaid hotel tax revenues owed to the city.

Milpitas City Council unanimously voted Sept. 1 in closed-session and on a related agendized item to approve a legal services agreement with Texas-based law firm McKool Smith LLC, and authorize the city attorney to execute a contract to have the law firm represent the city as special counsel if litigation against Web-based travel providers is pursued.

"Council has given authorization to prosecute an action against online travel providers to recoup transient occupancy tax owed to the city or take such other action administratively or though other means to recoup those taxes," City Attorney Mike Ogaz said during the meeting.

According to city reports, the approval would retain McKool Smith a firm to be paid solely on a contingency fee basis if a lawsuit is filed, or via arbitration award, or a court judgment to represent Milpitas in litigation.

City reports indicate online travel providers indicate amounts paid to City of Milpitas by these companies on Milpitas hotel bookings is something less than the amount of taxes owed under the city's ordinance.

Typically, Ogaz indicated online travel providers buy a block of rooms at a discount rate. He suggested as a matter of city law that 2 percent in hotel tax monies garnered from these transactions should be going to the city. Instead, Ogaz asserted many


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Web-based travel providers likely pocketed a portion of those city-owed hotel tax revenues.

If litigation is pursued, McKool Smith would be "seeking damages, attorneys' fees, costs and all other appropriate relief for the non-payment or underpayment to the city of transient occupancy taxes by online booking companies such as Hotels.com, Expedia.com, Travelocity and others," reports state.

"I can't say exactly who will be named as a defendant or if a lawsuit will be filed," Ogaz said, adding McKool Smith will begin compiling a case.

And although City of Milpitas is claiming a loss of hotel tax monies, Ogaz would not speculate on how much revenue to the city had gone unpaid.

"We're just starting out, we'll see what happens," Ogaz said of the city's investigation.

But the city attorney claimed similar litigation against online travel providers have occurred in other cities across the country.

"Actual lawsuits have been filed," Ogaz said.

According to ConsumerAffairs .com, in June, Expedia was hit with a second class action loss in a month's time after the Georgia Supreme Court ordered Bellevue, Wash.-based Expedia to pay an undetermined amount to the City of Columbus, Ga. The suit alleged 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.

A trial court will determine the amount owed by Expedia.

In response to the Georgia Supreme Court ruling, Expedia planned to file a motion to reconsider the ruling and, if unsuccessful, announced it would appeal the court's decision, reports state.

Columbus, Ga.'s argument was the same one claimed in a successful class-action suit settled earlier the same month in the state of Washington, Consumer-Affairs.com reported. In that case, the plaintiffs' alleged 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.

Also, reports state that suit was ultimately resolved when King County Superior Court ordered Expedia to pay $184 million to consumers who purchased tickets between Feb. 18, 2003 and Dec. 11, 2006.