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Counties Could Recover Millions in Class Action Suit

Online companies accused of underpaying taxes

June 05. 2006 9:03PM

A growing number of city and county governments are joining class action suits that say online hotel brokers are stepping around tax obligations with their business practices.

For example, Marshall County Commissioners (IN) voted unanimously to hire legal firms at no cost to represent the county in a class-action suit that could eventually include counties nationwide.

Online hotel brokers calculate the hotel and motel taxes they must pay based on the low wholesale rate initially paid for the room. Municipalities and counties, many of which depend heavily on the “innkeepers’ tax” for income, argue that the companies should pay a tax rate based on the price paid by the end user.

 David Holmes with Homes & Walter, said he doesn’t really know how much money the counties could take in if a suit is won, but he explained why such a suit represents “free money for the county.”

“It’s a fairly significant amount of money nationwide,” Holmes said. “There are millions of dollars involved. ... These outfits ... many have set up reserves because they know this thing is coming. There is a three-year statute of limitations on this.

“It’s an opportunity to collect money that just isn’t being paid,” the attorney concluded. 

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