Little Rock has joined a class-action lawsuit seeking to allow the city to collect unpaid taxes from the Internet rental of hotel rooms, and its tourism agency plans to do the same.
The claim is against a number of online travel companies that haven't paid all taxes due to cities, counties or other commissions for hotel and motel rooms rented at a discount through the companies' websites.
For years, the city and the Little Rock Advertising and Promotion Commission have collected taxes only on the incomes that hotels receive and not on the portions that a travel website such as Hotels.com receives.
The issue is whether the state's tax law allows for localities and commissions to collect taxes on a travel company's earnings. The city is seeking to collect gross receipts sales taxes, and the commission is seeking unpaid hotel and motel taxes.
"The foundational argument is just that the locality should get the total amount," said Gretchen Hall, president and chief executive officer of the Little Rock Convention and Visitors Bureau, which is governed by the Advertising and Promotion Commission.
The city Board of Directors on Monday approved a resolution authorizing the city to enter into an agreement with Thrash Law Firm, a Little Rock office representing plaintiffs in the case. Per the resolution, the agreement costs the city nothing upfront, and legal fees will be subtracted from any settlement the city receives if the litigation is successful.
Hall said last week that the city's Advertising and Promotion Commission plans to join the suit, but has not yet entered into an official agreement. The Advertising and Promotion Commission is the governing body for the Convention and Visitors Bureau.
There are no clear estimates on how much money the city would gain from a possible settlement. Jack Williams of Little Rock law firm Williams and Anderson, a co-counsel with Thrash Law Firm on the case, said he believes it would be a consequential amount and that the decision could have national implications.
"This is going to be an important case, one way or the other," Williams said. "We know it's significant money."
The class-action suit stems from a 2009 lawsuit against the online travel companies out of Jefferson County, in which the county and the Pine Bluff Advertising and Promotion Commission were the initial plaintiffs.
On May 14, Jefferson County Circuit Judge Robert H. Wyatt Jr. ruled that Hotels.com and 11 other online travel companies are liable for taxes dating as far back as 1995.
North Little Rock became a plaintiff in 2011, and that city's Advertising and Promotion Commission joined the class-action suit in July.
The online travel companies have since appealed the Jefferson County decision to the Arkansas Supreme Court. Williams said he expects the high court to release a decision in early spring.
If the state Supreme Court decides in favor of the localities and local commissions, Williams said, the case will go to trial court, and that court will set a deadline for other plaintiffs to join the case.
Williams said he believes the state could become a plaintiff in the future.
"The state's just not getting its fair share, in our view," he said.
It's difficult to determine how much the cities and commissions stand to gain from the suit because the online travel companies make private arrangements with hotels or chains of hotels, Williams said.
The Little Rock Convention and Visitors Bureau is funded primarily by a hotel, motel and restaurant tax levied by the city's Advertising and Promotion Commission. The lodging tax is 4 percent, Hall said.
Half of the lodging tax revenue is dedicated to paying off bonds to pay for a planned expansion and renovation of the Arkansas Arts Center, Hall said. Little Rock sold $31.2 million in hotel-tax revenue bonds for that purpose on Nov. 5.
The other half goes to the Convention and Visitors Bureau for its purposes, Hall said.
The city also collects its 1.5 percent sales tax on hotel rooms. City Attorney Tom Carpenter said any money the city gets from the case would go into its operating budget.
Metro on 11/11/2018