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Cities still can't tax Web hotel brokers

LOUISVILLE — A federal appeals court Tuesday upheld the dismissal of a lawsuit in which Louisville and Lexington officials tried to collect taxes from hundreds of online hotel brokers such as

The U.S. 6th Circuit Court of Appeals ruled that Kentucky's law governing hotel taxes doesn't cover online travel companies. U.S. District Judge Thomas Russell dismissed the suit in 2008.

The city of Louisville three years ago sued hundreds of Web sites, including Orbitz and Travelocity, that rent discount hotel rooms, accusing the online travel companies of not paying taxes on the rooms rented.

Lexington joined the lawsuit, asking Russell to award an unspecified amount from the online travel companies to the two municipalities and to the 24 cities and 25 Kentucky counties that have hotel taxes.

"Two federal appellate courts have now reviewed these types of lawsuits, and both have agreed that online travel companies should not be liable for local occupancy taxes," said Art Sackler, executive director of the Interactive Travel Services Association. "The simple and obvious fact is that only hotels should have to pay hotel taxes, and we're glad that the courts continue to recognize that."

Susan Straub, spokeswoman for Lexington Mayor Jim Newberry, said late Tuesday, "We really haven't seen the ruling yet and will need time to study it. We are working with Louisville on this suit, and we will have to confer with them."