The opinion of the court was delivered by: Judge McCULLOUGH
BEFORE: HONORABLE BONNIE BRIGANCE LEADBETTER, President Judge*fn1
HONORABLE DAN PELLEGRINI, Judge HONORABLE ROBERT SIMPSON, Judge HONORABLE MARY HANNAH LEAVITT, Judge HONORABLE P. KEVIN BROBSON, Judge HONORABLE PATRICIA A. McCULLOUGH, Judge HONORABLE JOHNNY J. BUTLER, Judge*fn2
The City of Philadelphia (City) appeals from the January 13, 2011, order of the Court of Common Pleas of Philadelphia County (trial court) denying the City's appeal from a decision of the City's Tax Review Board (Board) concluding that Expedia, Inc. (Expedia) was not subject to the City's Hotel Room Rental Tax (Hotel Tax).*fn3 We affirm.
The underlying facts of this case are not in dispute and may be summarized as follows. Expedia is an online travel service that allows customers to make travel arrangements, including reservations for hotels, flights, rental cars, and events, through its website. For the period at issue, 2001 to 2005, Expedia entered into contracts with various hotels in the Philadelphia area to offer hotel rooms at a discounted net rate and to book reservations on behalf of its customers.*fn4 Expedia then posted the rooms on its website for reservation at a discounted rate. When a customer made a hotel reservation on Expedia's website, the customer was charged the discounted room rate, plus a facilitation fee, a service fee, a tax recovery charge, and an amount equal to the City's Hotel Tax. Expedia calculated the Hotel Tax solely on the room rate and did not include any fees in this calculation.*fn5 After payment of these charges, Expedia provided the customer with a confirmation number and a printable reservation.
When the customer arrived at the hotel, the customer was required to check in with the hotel's personnel and provide the hotel with security for any incidental charges incurred during the stay. The hotel bore the responsibility for selecting and providing the appropriate room and room key and for maintenance of the hotel and any amenities it provided. Even if a room was guaranteed, the hotel was not absolutely required to provide the customer with one of its rooms. However, if the hotel failed to provide a room, it was responsible for securing accommodations at a comparable hotel for the customer at no additional cost. Upon the customer's checkout, the hotel provided Expedia with an invoice for the contracted room rate and the applicable Hotel Tax on that rate and the hotel assumed responsibility for transmitting the collected Hotel Tax to the City's Department of Revenue (Revenue).
On April 10, 2007, Revenue forwarded an assessment to Expedia in the amount of $1,053,447.40 for unpaid Hotel Tax for the period from 2001 to 2005. This figure represented $566,144.00 in actual tax, $178,836.36 in interest, and $308,467.04 in penalties. Revenue sought to collect the Hotel Tax based upon the actual rate charged to the customer by Expedia, inclusive of its fees. Expedia filed an appeal of the assessment with the Board, alleging that it was not subject to the Hotel Tax because it was not a hotel operator, that the fees it charged and retained were not subject to the Hotel Tax, and that the imposition of the same was prohibited by the Commerce Clause of the United States Constitution.
The Board conducted several public hearings at which it heard from witnesses for both Expedia and Revenue and received numerous documents into evidence. On February 19, 2010, the Board issued a decision letter granting Expedia's petition for appeal on the ground that Expedia did not meet the definition of "operator" under section 19-2401 of the Philadelphia Code. The City appealed to the trial court. On March 23, 2010, the Board issued an amended decision letter clarifying that its decision applied to 2001-2005 tax years. The City again filed an appeal with the trial court, which consolidated the City's appeals. On July 6, 2010, the Board issued a written decision in support of its orders. The Board concluded that the testimony provided by representatives of the City did not provide "a sufficient evidentiary foundation for the assessment of the [Hotel Tax] on each and every transaction in hotels in the City with which [Expedia] was involved based on the City's pre-assessment review of only one hotel contract." (Conclusion of Law No. 2.) The Board noted that review of that single contract failed to provide a sufficient evidentiary foundation even for that portion of the assessment related solely to transactions under that contract.
More specifically, the Board concluded that Expedia was not a hotel "operator" as that term was defined in section 19-2401(7) of the Philadelphia Code. In this regard, the Board indicated that Expedia could not, independent of hotel management, reserve and rent a room. Instead, Expedia's only activity was to provide information about hotel availability, amenities, and rates to potential travelers and to collect payment from its customers. Much like a patron, Expedia received an invoice from the hotel for the room rate plus the Hotel Tax, which it remitted to the hotel. The Board noted that Expedia did not have a block of rooms set aside that it could offer and book without the hotel's permission. The Board also indicated that the hotels always retained control of its rooms and their availability and did not cede to Expedia any rights to any rooms or responsibilities for the rooms, the hotel premises, or the rental records. The Board stated that the contract language confirmed the reality of the relationship between Expedia and the hotels, i.e., Expedia contracted for the right to book reservations on behalf of its customers. By opinion and order dated January 13, 2011, the trial court denied the City's appeal and affirmed the Board's decision and orders.
On appeal to this Court,*fn6 the City argues that the trial court erred as a matter of law in affirming the Board's determination that Expedia was not a hotel operator. We disagree.
Narrow Standard of Review and Deference
We begin by noting that it is well established that tax statutes must be strictly construed against the government and that any reasonable doubt as to the application of the statute must be resolved in favor of the taxpayer. 1 Pa. C.S. §1928(b)(3); Kline v. Commonwealth, 899 A.2d 408 (Pa. Cmwlth. 2006), affirmed, 593 Pa. 380, 930 A.2d 1263 (2007). Moreover, we have previously indicated that, as the agency responsible for construing and enforcing the Hotel Tax, the Board's determination is "entitled to great deference and will not be reversed unless clearly erroneous." City of Philadelphia v. Tax Review Board, ex rel. Ace Dump Truck Service, 631 A.2d 1072, 1076 (Pa. Cmwlth. 1993).
Chapter 19-2400 of the Philadelphia Code - The Hotel TaX Section 19-2402(1) of the Philadelphia Code provides for the imposition of the Hotel Tax "on the consideration received by each operator of a hotel within the City from each transaction of renting a room or rooms to accommodate transients. The tax shall be collected by the operator from the patron of the room and paid over to the City pursuant to Sections 19-2403 and 19-2405...." (R.R. at 728a.) Section 2401 of the Philadelphia Code sets forth the following relevant definitions:
Consideration. Receipts, fees, charges, rentals, leases, cash, credits, property of any kind or nature, or other payment received by operators in exchange for or in consideration of the use or occupancy by a transient ...