County chooses not to sue

Thursday, Jan. 19, 2006 | 8:22 a.m.

Clark County administrators are not buying the argument from two Las Vegas lawyers that the county could recover hundreds of millions of tax dollars from Internet travel operators.

The attorneys have asked county commissioners to file a lawsuit to recover as much as $723 million that they allege Internet travel sites owe local governments.

A successful suit, they say, would result in a windfall for tourism marketing, local schools and roads. It also could result in millions of dollars in legal fees for them, they acknowledged.

But county officials said they reviewed the legal arguments months ago and came to the conclusion that they probably would lose a court battle. An advisory opinion from the Nevada Taxation Department bolsters the county position.

"I don't think the county has much of an interest in moving forward on this," said Don Burnette, chief administrative officer in County Manager Thom Reilly's office. "We took a close look at it last spring when the LVCVA (Las Vegas Convention and Visitors Authority) asked that it be looked at from a fresh perspective."

Charles Chinnock, Taxation Department executive director, concurs that the fees charged by the Internet travel operators are not subject to room occupancy taxes.

Chinnock said the department last year issued an advisory opinion that was reviewed by the state attorney general's office. The department said the charges are fees and not subject to the room tax.

"It's appealable and can be challenged, but opinions can be used by taxpayers for their purposes," he said.

LVCVA President Rossi Ralenkotter also has no appetite to pursue the legal chase.

"Las Vegas is a destination like no other," Ralenkotter said through a spokesman. "This issue is very complex, and the dynamics of Las Vegas demonstrated the concept did not warrant pursuing."

Las Vegas lawyers Christopher Kaempfer and Bruce Mayfield, who work for two separate law firms, wrote a joint letter to Commission Chairman Rory Reid last week, encouraging the county to pursue civil actions against various Internet travel operators who contract with resorts to sell hotel rooms online.

The Internet operators, the lawyers argue, shortchange taxing authorities with their sales methods. The operators, they note, pay taxes only on the discounted nightly room rates they negotiate with resorts -- not on the service fees and other administrative costs added that produce the travel firms' profit and defray their expenses.

"At this time, eight other governmental jurisdictions are pursuing their lost tax revenue claims against the Internet travel operators," the lawyers' letter says.

Kaempfer and Mayfield estimate that between 2000 and 2005, the lost tax revenue to Clark County could range from $677.4 million and $722.9 million, based on hotel occupancy during that five-year period and the estimate that between 30 and 48 percent of travelers purchased their rooms online.

The lawyers maintain that fees charged by Internet travel operators are part of the room rate and should be taxed accordingly. Clark County levies a room tax of 9 percent on hotel rooms, with the monies split among several entities, including LVCVA, schools, county and municipal governments.

Southern Nevada stands to gain more than any other region in the nation with an inventory of more than 133,000 hotel rooms.

But the tax question is an issue being debated across the country. Currently, there are civil suits involving Los Angeles; Philadelphia; Chicago; Findlay, Ohio; Bellingham, Wash.; and Rome, Ga.

Art Sackler, executive director of the Interactive Travel Services Association, an organization that represents several Internet travel operators, says his clients -- among them Expedia, Orbitz, hotels.com and Priceline -- have created a new marketplace.

Among the association's members is online travel firm VEGAS.com, a sister company of the Las Vegas Sun.

Lawyers and some government entities argue that the Internet travel operators' fees are a part of the room package and should be subject to taxation.

With more consumers gravitating to online hotel room purchases, the potential tax revenue on those fees is substantial. Multiply those per-room fees by the thousands of rooms in Las Vegas, 365 days a year, and the difference adds up into hundreds of millions of dollars.

"The service fee is for creative (work), maintenance and upkeep of the platform of this new marketplace," Sackler said. "And the customer gets value. Price is one feature, functionality is a very important second feature and ease of use, convenience, all that stuff, is important. This is not a conventional retail model."

But Mayfield said state tax laws and county ordinances have differences and that the potential of collecting additional revenue is worth the effort.

"The School District and our transportation system have needs and when it came to our attention that a number of jurisdictions across the United States were pursuing this, it raised our curiosity about the potential for lost taxes here," Mayfield said.

He admitted there also was a lot of potential to enrich his law firm. While he said there are too many variables to come up with an estimate, he said that it probably would be in the millions of dollars.

Sackler, though, questioned why the law firm even began the exercise.

"Don't you think it's rather odd for law firms to come to the government to file lawsuits to recover taxes?" he said. "There are a number of steps in the process before resorting to a lawsuit. This immediate jump to court leaves us scratching our heads."

Richard N. Velotta can be reached at 259-4061 or at velotta@ lasvegassun.com.