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State v. Priceline.Com, Inc.

Supreme Court of New Hampshire

March 8, 2019


          Argued: January 10, 2019


          Gordon J. MacDonald, attorney general (Philip B. Bradley, assistant attorney general, and K. Allen Brooks, senior assistant attorney general, on the brief), Crongeyer Law Firm, P.C., of Atlanta, Georgia (John W. Crongeyer on the brief and orally), and Bird Law Group, of Atlanta, Georgia (Paul I. Hotchkiss and Alexandria E. Seay on the brief), for the State.

          Rath Young and Pignatelli, PC, of Concord (Christopher J. Sullivan, Michael S. Lewis, and Richard W. Head on the brief), Bradley Arant Boult Cummings LLP, of Birmingham, Alabama (Anne Marie Seibel and Jennifer J. McGahey on the brief, and Ms. Seibel orally), Kelly Hart & Hallman LLP, of Fort Worth, Texas (Brian Stagner and Scott R. Wiehle on the brief), and Freeborn & Peters LLP, of Chicago, Illinois (Jeffrey A. Rossman on the brief), for the defendants.

          HICKS, J.

         The State appeals an order of the Superior Court (McNamara, J.) following a ten-day bench trial granting judgment to the defendants, the direct or indirect subsidiaries of, Inc., Orbitz, LLC, Expedia, Inc., and, LLP, alleging that: (1) they violated the New Hampshire Meals and Rooms Tax Law, see RSA ch. 78-A (2012 & Supp. 2018), by failing to remit meals and rooms taxes on transactions with hotel consumers and by bundling money collected from consumers as taxes with other amounts; and (2) the bundling of taxes with other fees also violated the New Hampshire Consumer Protection Act (CPA), see RSA ch. 358-A (2009 & Supp. 2018). We affirm.


         Except where noted, the trial court found the following facts, which, for the most part, the State does not dispute on appeal. The defendants are online travel companies (OTCs). Commentators have observed that OTCs "attract consumers by aggregating information that allows travelers to sort through hotels and book a room on a central website." Chantelle L. Lytle, Note, Groupon and Expedia: A Comparison of Two Modern Online Trends Creating a Parallel Tax Inquiry, 6 Elon L. Rev. 217, 233 (2014) (quotation and brackets omitted). Those websites allow "consumers to easily compare hotels based on different criteria (including price, location, and customer ratings) and at the same time book a reservation and pay for it." Id. (quotation omitted). Commentators have opined that OTCs benefit travelers but "also benefit hotels, allowing them to reach a market that they otherwise would not reach." Id. at 234 (quotation and ellipsis omitted). The primary function of OTCs is to relay information between travelers and hotels.

         Generally speaking, OTCs use either the "agency" or the "merchant" model to conduct business. Under the agency model, the consumer pays the hotel directly for the room. See id. The hotel then pays the OTC a commission for the booking and remits to the State the meals and rooms tax on the full amount received from the consumer. See id. The State has no claims in this litigation related to the use of the agency model. Rather, this litigation focuses upon only the use of the merchant model.

         Under the merchant model, the consumer pays the OTC, not the hotel, for the room. See Village of Bedford Park v. Expedia, Inc., 876 F.3d 296, 299 (7th Cir. 2017). The OTC and the hotel have a contract under which the hotel offers rooms to the OTC at a discounted rate, i.e., a percentage of the hotel's lowest published rate, and the OTC displays information about the hotel on its website so as to allow consumers to book room reservations through the website. The discounted rate is referred to as the "net" or "wholesale" rate. See Lytle, supra at 235. According to one witness, under the merchant model, the OTC transfers to the hotel information that a consumer enters when booking a hotel room reservation on the OTC's website (e.g., destination, dates of travel, number of rooms) and then displays for the consumer real time rates, availability, and the hotel's associated terms and conditions for occupancy.

         When the consumer books a hotel room reservation through an OTC website under the merchant model, the OTC collects payment from the consumer using the consumer's credit card. The OTC, therefore, is the merchant of record. The hotel then has a certain number of days in which to send an invoice to the OTC for the net rate of the hotel room and the meals and rooms tax on that rate. See id.

         Although the hotels offer hotel rooms to the OTCs at a discounted rate (the net or wholesale rate), the OTCs may offer those rooms to consumers at a higher rate (the retail rate). See id. The hotels, however, insist upon "parity" in all merchant model transactions, which means that the ultimate price paid by the consumer must be no lower than the price the hotel advertises as its "best available rate." A hotel's "best available rate" refers to the lowest rate for the room that the hotel offers to the public. For example, if the hotel's lowest published rate is $100, and the hotel allows the OTC a discounted rate of 20% lower than the lowest published rate (or $80) for the room, then the OTC cannot offer it to a consumer for less than $80 divided by .80, which is $100.

         The total amount an OTC charges the consumer (the retail amount) includes the retail room rate, an estimate of the meals and rooms tax on the net rate, and a service fee. See id. It may include other charges as well. The OTC does not disclose to the consumer the estimated meals and rooms tax included in the retail amount. However, the OTC does disclose the fact that taxes and fees are bundled into a charge separate from the room rate. As one OTC informs customers on its website:

Amounts displayed in the "Taxes and Fees" line for prepaid hotel transactions include an estimated amount we expect the hotel to bill for applicable taxes, government fees and other charges that the hotels must pay to the government. In addition, the "Taxes and Fees" line includes a fee we charge and retain in exchange for the services we provide in facilitating your transaction with the hotel supplier.

         This litigation concerns the meals and rooms tax paid on hotel room reservations using the merchant model. In a typical merchant model transaction, the OTC pays the hotel the amount of tax that the hotel owes on the net or wholesale rate. The OTC does not pay the meals and rooms tax based upon the retail rate. Nor does the OTC pay meals and rooms tax on any of the other OTC fees or surcharges that the consumer may pay. Moreover, if, for some reason, the consumer does not keep his or her reservation, then the hotel does not send an invoice to the OTC, and the OTC may retain all of the funds collected for the reservation, paying no meals and rooms tax on those funds.

         As an example, when an OTC and a hotel agree to a wholesale rate of $80, and the OTC charges consumers a rate of $100, the 9% meals and rooms tax on the wholesale rate is $7.20 (.09 x $80). See RSA 78-A:6, I (2012). Assuming that, in addition to the tax recovery fee, the OTC has a service fee of $2.80, the OTC then charges the consumer a total amount of $110. The retail amount includes the retail rate of $100 plus $10 in fees ($7.20 for the estimated meals and room tax and $2.80 for the service fee). Within an agreed upon number of days, the hotel invoices the OTC for $80 plus the $7.20 for the meals and rooms tax and remits $7.20 to the State; the OTC keeps the remaining $22.80 from the retail amount paid by the consumer, and pays no meals and rooms taxes on it. See Lytle, supra at 235-36. If the hotel fails to invoice the OTC within the agreed-upon number of days, the OTC is entitled to retain the entire $110 paid by the consumer.

         The parties dispute whether the OTCs are subject to the meals and rooms tax law. The trial court ruled that OTCs are not subject to the law because they are not "operators" of hotels. See RSA 78-A:3, IV (2012). The trial court decided that, according to the statutory definition of the term, to be an "operator" requires having possession or control of a hotel's physical structure. See id. Because OTCs have no possessory interest in, or control over, the hotels with which they contract, the court concluded that they are not "operators" under RSA chapter 78-A.

         The trial court also decided that the OTCs are not "operators" under the plain meaning of the term, which the court concluded "suggests day-to-day management of the hotel property." Although the State had argued "in a desultory way that the OTCs exercise significant control over many aspects of day-to-day hotel operations," because they have "access to central reservation systems, provid[e] reservation confirmation numbers, and rat[e] possible properties," the trial court ruled that argument "untenable" because "[s]uch functions are entirely consistent with the OTCs' role as a distribution channel." (Quotations omitted.)

         Although the State contended that the OTCs buy, sell, and resell hotel rooms, the trial court found that "the evidence conclusively establishes that the actual business practices of the OTCs do not involve buying or selling hotel rooms."[1] Rather, the court found, "the OTCs simply contract with ...

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