By Daniel Wiessner
ALBANY, N.Y. (Reuters) - A New York City occupancy tax onhotel-booking companies, such as Expedia Inc, was ruledconstitutional by New York state's highest court on Thursday,the latest development in a legal battle playing out nationwide.
In a 5-2 decision, the New York Court of Appeals upheld thelaw which imposes a 6 percent occupancy tax on "online travelintermediaries."
Sites such as Expedia Inc, Priceline.com Inc, Orbitz Worldwide Inc and Hotels.com allowcustomers to book hotel rooms online, often at a discountedrate.
The court rejected the companies' claim that the city didnot have the right to tax them because they merely facilitatedreservations and did not occupy the rooms.
"Online travel companies ... have successfully reshaped theway people book travel," Judge Jenny Rivera wrote for the court."However, this innovation has not changed the main purpose of ahotel reservation process: selecting and paying for a room forfuture occupancy."
Steve Shur, the president of the Travel TechnologyAssociation, a trade group that represents online bookingcompanies, said on Thursday that the companies were disappointedbut would continue to comply with the law.
"The key point is that online travel companies do not buy,sell or operate hotel rooms, and dozens of courts haverecognized this," he said.
Todd Geremia of Jones Day, who represented the companies,declined to comment on the decision. An Expedia spokeswoman alsodeclined comment.
The City Law Department did not immediately have comment.
The decision reversed a 2011 ruling from a lower stateappeals court, which had declared the law unconstitutional.
It was not immediately clear how much money the companieshave paid as a result of the occupancy tax, but the city hassaid the figure runs into the millions.
The city law in question, Local Law 43, was intended toclose what the city believes is a tax loophole. Travel sitesprofit by buying rooms from hotels - paying tax on that rate -before selling them to consumers at a higher price. Before LocalLaw 43, the city did not collect taxes on the difference.
The lawsuit is one of many pitting reservation sites againstmunicipalities, which argue that they lose millions of dollarsin tax money because of the online services.
Courts have been divided on the issue. In 2011, a Texasfederal judge affirmed a jury's finding that online travelcompanies owed millions in taxes to 173 municipalities. Monthslater, a California court ruled that San Diego's occupancy taxcould not be applied to booking sites.
The case is Expedia v. New York City Department of Finance,New York State Court of Appeals No. 180.
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- Orbitz Worldwide Inc