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City and County of Denver v. Expedia, Inc.

Supreme Court of Colorado, En Banc

April 24, 2017

City and County of Denver, Colorado; Brendan Hanlon in his official capacity as the Chief Financial Officer of the City and County of Denver; and Bill Speckman, in his official capacity as Hearing Officer designated by the Chief Financial Officer, Petitioners:
Expedia, Inc.;, L.P.; Hotwire, Inc.; Orbitz, LLC;, Incorporated;, LLC; Travel Webb LLC; LP; and Trip Network, Inc. d/b/a Respondents:

         Certiorari to the Colorado Court of Appeals Court of Appeals Case No. 13CA779

          Attorneys for Petitioners: Lewis Roca Rothgerber Christie LLP Michael D. Plachy Thomas M. Rogers

          Hagens Berman Sobol Shapiro LLP Andrew M. Volk Christopher A. O'Hara City Attorney for the City and County of Denver Charles T. Solomon

          Attorneys for Respondents: Zonies Law LLC Sean Connelly Denver, Colorado Davis Graham & Stubbs Jason M. Lynch

          Attorneys for Amici Curiae Colorado Municipal League and Colorado Association of Ski Towns: Colorado Municipal League Geoffrey T. Wilson

          Attorneys for Amici Curiae Visit Denver and Colorado Hotel and Lodging Association: Brownstein Hyatt Farber & Schreck, LLP Richard B. Benenson

          Attorneys for Amicus Curiae American Society of Travel Agents, Inc.: Blain Myhre LLC Blain Myhre

          JUSTICE COATS announced the judgment of the Court and delivered an opinion, in which JUSTICE MÁRQUEZ and JUSTICE BOATRIGHT join. CHIEF JUSTICE RICE and JUSTICE EID join in the dissent.

          ¶1 Denver petitioned for review of the court of appeals opinion reversing the judgment of the district court and remanding with directions to vacate the subject tax assessments against Expedia and the other respondent online travel companies ("OTCs"). See Expedia, Inc. v. City & Cty. of Denver, 2014 COA 87, P.3d . The district court had largely upheld a Denver hearing officer's denial of protests by Expedia and the other OTCs to Denver's claim for unpaid taxes, interest, and penalties, assertedly due according to Denver's ordinance imposing a lodger's tax. Unlike the hearing officer and district court, the court of appeals concluded that the city lodger's tax article was at least ambiguous with regard to both the purchase price paid or charged for lodging, upon which the tax is to be levied, and the status of the OTCs as vendors, upon which the ordinance imposes the responsibility to collect the tax and remit it to the city; and the intermediate appellate court considered itself obligated to resolve all ambiguities in the lodger's tax article, being a tax statute, in favor of the OTCs.

         ¶2 The application of well-accepted aids to statutory construction leads to the conclusion that the fair and reasonable interpretation of Denver's lodger's tax article is that it imposes a duty on the OTCs to collect and remit the prescribed tax on the purchase price of any lodging they sell, to include not only the amount they have contracted with the hotel to charge and return but also the amount of their markup. The judgment of the court of appeals is therefore reversed, and the matter is remanded for consideration of the remaining issues raised on appeal by the parties.


         ¶3 In July 2010, the City and County of Denver issued nine Notices of Final Determination, Assessment and Demand for Payment against various online travel companies: Expedia, Inc.; LP; Hotwire, Inc.; Orbitz, LLC; Trip Network, Inc.; Incorporated; Travelweb, LLC;, LLC; and LP. The Notices claimed unpaid taxes, penalties, and interest due according to the city lodger's tax article, Denver Revised Municipal Code ("D.R.M.C.") §§ 53-166 to -236, for the period from January 2001 through April 2010, totaling over $40 million.[1] These online companies filed nearly identical protests, requesting hearings before a Denver Department of Finance hearing officer, and the protests were consolidated by stipulation.

         ¶4 Based on the stipulated evidence, including depositions and other materials from litigation in other jurisdictions and internal materials of the OTCs themselves explaining their operational methods and practices, the hearing officer found, and the parties do not dispute, that the OTCs operate under two basic business models. Under what they describe as the "agency model, " he found that the OTCs refer customers to hotels. Lodgers then transact directly with the hotels, and the OTCs receive commissions in separate transactions. Under what they describe as the "merchant model, " by contrast, the OTCs operate in the transaction somewhere between lodgers and hotels. Lodgers transact with the OTCs, prepaying for reservations, and the OTCs later pass part of those payments along to the hotels. The OTCs, not the hotels, appear as the merchant of record on lodgers' credit card statements-hence the term "merchant model." These two models have different pricing structures, about which again the parties do not disagree. In the agency model, the hotels maintain exclusive control over the purchase price paid by lodgers. In the merchant model, by contrast, the hotels set a rate they will accept, which the OTCs refer to as a "net rate, " but the hotels grant the OTCs discretion, within designated limits, to set the price ultimately to be paid by the lodger. The OTCs then sell reservations to lodgers at that price, pass the amount of the so-called "net rate" plus a tax surcharge along to the hotels, and retain the difference as their own compensation.

         ¶5 For agency-model transactions, the hotels collect and remit lodger's taxes, just as they do for all other traditional bookings.[2] For merchant-model transactions, the hotels, as a matter of practice, have also been claiming the transactions on their own lodger's tax returns, but because the hotels do not transact directly with the lodgers, and because the hotels typically do not receive payment at the time of the transaction with the lodger, the process of collecting and remitting the lodgers' tax to the city is, in current practice, somewhat more convoluted. In practice, the OTCs typically collect a "surcharge" from the lodger at the time the lodger initially pays for a reservation. The OTCs then transmit that tax surcharge to the hotel along with the so-called "net rate, " which transmission ordinarily occurs after the lodger checks out. Finally, the hotel remits the surcharged amount to the city, along with its other lodger's tax receipts for the month.

         ¶6 When booking reservations, the OTCs typically disclose two charges to lodgers. The first amount is the room rate, which is presented to the lodger as a single per-night rate that includes both the discounted rate to be returned to the hotel and the OTC's markup on that rate. The second amount is a taxes-and-fees charge, which is presented to the lodger as a single per-transaction amount but which actually has two components: what the OTCs refer to as a "service fee" and a surcharge for taxes.[3]Typically, the parties agree, the tax surcharge is computed on the "net rate, " while the service fees are computed on the price charged to the lodger plus taxes.

         ¶7 To illustrate, Denver relied on the following example during administrative proceedings, using hypothetical numbers from the deposition of Expedia, Inc.'s corporate representative. Assume a website sells a reservation for $100, of which $75 will be paid to the hotel as the net rate and $25 will be retained by the OTC as its markup. If the applicable lodger's tax is 10%, it will be applied to the $75 net rate and the tax surcharge will therefore be $7.50. If the OTC's service charge is 5.5%, it will be applied to the so-called "retail price" plus taxes-i.e., to $107.50-and the service fee will therefore be $5.91. The lodger will see a room rate of $100 and a taxes-and-fees charge of $13.41, and will pay a total of $113.41. The OTC will retain both the markup and the service fee ($25 plus $5.91, totaling $30.91)[4] and will eventually remit to the hotel the "net rate" and tax surcharge ($75 plus $7.50, totaling $82.50). The hotel then will remit the tax receipts ($7.50) on its next monthly lodger's tax return.

         ¶8 The hearing officer held that this practice for merchant-model transactions does not comport with the mandates of the city lodger's tax article for two reasons. First, he concluded that the OTCs' markups and service fees are "directly connected with" furnishing lodging, as contemplated by section 53-171(c) of the D.R.M.C., and therefore must be included within the tax base. Second, he concluded that the OTCs are "vendors, " within the contemplation of section 53-170(8), and are therefore responsible for collecting and remitting taxes directly to the city. The hearing officer therefore upheld Denver's Notices.[5]

         ¶9 The OTCs sought judicial review as permitted by C.R.C.P. 106(a)(4). The district court rejected Denver's position regarding the applicable statute of limitations, holding instead that Denver could assert liabilities for only the preceding three years, but otherwise it upheld the hearing officer's determinations. On cross-appeals by the parties, the court of appeals concluded that the city lodger's tax article is at least ambiguous as to both the question whether the OTCs are "vendors, " with collect-and-remit obligations, and the question whether the tax base includes the OTCs' markups and service fees. Relying on its understanding that tax statutes must be construed strictly, the intermediate appellate court construed both provisions against the promulgating authority and ordered the case remanded with directions to vacate Denver's Notices.[6]

         ¶10 Denver petitioned this court for a writ of certiorari.


         ¶11 By ordinance, the City and County of Denver imposes a tax on the privilege of purchasing lodging in the city, and the tax thus imposed is to be paid by the person exercising the privilege. D.R.M.C. § 53-171(a). The amount of the tax is to be calculated as a percentage of the purchase price paid or charged for purchasing the lodging, § 53-171(b), and obligations are imposed on the vendor to add the amount of this tax to the purchase price or charge for lodging and pay to the city, on a monthly basis, an amount equivalent to the tax on all gross taxable sales, § 53-174(a).

         ¶12 The term "purchase or sale" is used as a term of art in the lodger's tax article to mean the acquisition or furnishing of lodging within the city for consideration. See § 53-170(4). Similarly, the term "lodging" is used as a term of art in the article to refer to rooms or accommodations for overnight use furnished to someone who has for consideration acquired the right to use, possess, or occupy any such room or accommodation in either a hotel or another of the enumerated similar establishments, under a concession, permit, lease, contract, license to use, or other similar arrangement. § 53-170(2). Finally, the term "vendor, " as it is used in the lodger's tax article, refers specifically to a person making sales of lodging, or furnishing lodging, to a purchaser in the city. § 53-170(8).

         ¶13 No claim that the city's lodging tax article is unconstitutional, is preempted by statute, or is otherwise inoperable was implicated by the court of appeals judgment below. Therefore the questions pending before this court, concerning whether the OTCs are vendors and, if so, whether the purchase price upon which the lodging tax is to be calculated includes the OTCs' markup, turn entirely on the interpretation of the Denver lodger's tax article.

         ¶14 Like state statutes, city ordinances are a form of legislation and therefore have meaning according to the intent of the enacting body, as that intent is expressed in the language the enacting body has chosen for the particular ordinance itself. Dep't of Transp. v. Gypsum Ranch Co., 244 P.3d 127, 131 (Colo. 2010); City of Colorado Springs v. Securcare Self Storage, Inc., 10 P.3d 1244, 1248 (Colo. 2000). If an ordinance or statute is clear and unambiguous, and is not in conflict with another ordinance or statute, it must simply be applied as written. Holcomb v. Jan-Pro Cleaning Sys. of S. Colo., 172 P.3d 888, 890 (Colo. 2007). However, if the language in which legislation is written is susceptible of more than one reasonable interpretation, and is therefore considered ambiguous, a substantial body of interpretative aids, either provided by the legislative body itself to explain its own drafting conventions and preferences for avoiding or resolving conflict, see, e.g., D.R.M.C. §§ 1-3 to -12, or developed by courts over centuries, see generally Norman J. Singer & J.D. Shambie Singer, Sutherland Statutes & Statutory Construction (7th ed. 2007), is available to help determine which of these reasonable interpretations actually embodies the legislative intent. People v. Jones, 2015 CO 20, ¶ 10, 346 P.3d 44, 48.

         ¶15 These interpretative aids, or canons of construction, may take a number of different forms. As we have noted in the past, many reflect little more than grammatical or syntactical conventions; others largely reflect conventions followed in the process of legislative drafting; and still others purport to draw reasonable inferences from the relationship between legislative enactments and external events, or actually seek to reconstruct the purpose of drafters, sponsors, or even individual supporters with regard to legislative enactments. See Union Pac. R.R. v. Martin, 209 P.3d 185, 188 (Colo. 2009). Noteworthy for understanding the meaning of the tax provisions at issue here, a number of court-developed aids, or rules of construction, also express presumptions, or preferences, favoring, in the absence of adequate indication to the contrary, one over another class of litigants affected by the specific type of legislation at issue.

         ¶16 Included in this last group are policy preferences concerning the construction of statutes imposing burdens on property or liberty. In this jurisdiction, we have long accepted the proposition that statutes imposing a tax burden on the citizenry should be construed strictly, resolving doubts concerning their meanings in favor of the persons against whom an attempt is made to exact the tax. Gomer v. Chaffee, 6 Colo. 314, 317 (1882) ("It is a settled rule in the interpretation of revenue laws, that in case of doubt or ambiguity the construction must be in favor of the public." (citing Thomas M. Cooley, Law of Taxation 197-208 (1876, reprinted 1881)). Much like the closely related policy favoring lenity in the construction of criminal statutes, see Commissioner v. Acker, 361 U.S. 87, 91 (1959) (applying rule of lenity to civil tax penalties), however, this policy preference regarding tax burdens was never intended to displace other canons designed to help resolve doubts, or ambiguity. See, e.g., Douglas Cty. Bd. of Equalization v. Fid. Castle Pines, Ltd., 890 P.2d 119, 125-30 (Colo. 1995) (stating that "[g]enerally, we interpret ambiguous tax statutes in favor of the taxpayer, " but also applying several other canons of construction and surveying legislative history); Stanley v. Little Pittsburg Min. Co., 6 Colo. 415, 419 (1882) (citing Cooley, supra, for the proposition that the presumption exists to maintain fidelity to legislative intent); cf. White v. United States, 305 U.S. 281, 292 (1938) ("It is the function and duty of courts to resolve doubts. We know of no reason why that function should be abdicated in a tax case . . . . Here doubts which may arise upon a cursory examination of §§ 101 and 115 disappear when they are read, as they must be, with every other material part of the statute, and in the light of their legislative history." (citation omitted)).

         ¶17 Rather, such policy preferences have often been characterized as rules of last resort, applicable only if, after utilizing the other relevant aids to statutory construction, the enacting body's intent remains obscured. See, e.g., People v. Thoro Prods. Co., 70 P.3d 1188, 1198 (Colo. 2003) (quoting from Muscarello v. United States, 524 U.S. 125, 138 (1998), to the effect that the "rule of lenity applies only if, after seizing everything from which aid can be derived, . . . we can make no more than a guess as to what Congress intended, " and from United States v. Wilson, 10 F.3d 734, 736 (10th Cir. 1993), to the effect that the "rule of lenity is a rule of last resort, to be invoked only after traditional means of interpreting the statute have been exhausted"); BP Am. Prod. Co. v. Patterson, 185 P.3d 811, 814 (Colo. 2008) (holding that rule favoring longer, rather than shorter, of two arguably applicable statutes of limitation, like analogous rules of choice applicable to statutes or contractual provisions generally, is a rule of last resort); cf. Lee R. Russ & Thomas F. Segalla, Couch on Insurance § 22:16 (3d ed. 1995) (characterizing the familiar principle that ambiguity in insurance contracts must be construed in favor of insured as a rule of last resort).[7]

         ¶18 It is also widely accepted that where the body enacting particular legislation has not expressly defined a term or otherwise limited its meaning, that term must be given its ordinary meaning. See Taniguchi v. Kan.Pac. Saipan, Ltd., 566 U.S. 560,, 132 S.Ct. 1997, 2002 (2012); Marquez v. People, 2013 CO 58, ¶ 8, 311 P.3d 265, 268. Because, however, terms frequently have more than one ordinary meaning, or at least more than one shading or nuance of meaning, and because even a dictionary definition broad enough to encompass a particular sense of a word does not establish that the term is ordinarily understood in that sense, Taniguchi, 566 U.S. at, 132 S.Ct. at 2003, the precise meaning intended by an undefined term often must be determined by reference to other considerations, like the context in which it is used and the apparent purpose for its use, Marquez, ¶ 8, 311 P.3d at 268; see also Curious Theater Co. v. Colo. Dep't of Pub. Health & Env't, 220 P.3d 544, 549 (Colo. 2009). In particular, we have often held that in the absence of some express indication to the contrary, a term or provision that is part of a greater statutory scheme should be interpreted, to the extent possible, harmoniously with the other provisions and purpose of that scheme. Gypsum Ranch Co., 244 P.3d at 131; Frank M. Hall & Co. v. Newsom, 125 P.3d 444, 448 (Colo. 2005). In this regard, a tax statute is no different from any other statute. Welby Gardens v. Adams Cty. Bd. of Equalization, 71 P.3d 992, 995 (Colo. 2003); see also Walgreen Co. v. Charnes, 819 P.2d 1039, 1043 & n.6 (Colo. 1991) (requiring that particular Denver sales tax ordinance be construed in pari materia with entire scheme to effectuate the legislative intent).

         ¶19 The two issues resolved by the court of appeals by construing the lodger's tax article, or better, by declining to fully construe the lodger's tax article and instead resolving any perceived ambiguity in favor of the taxpayer, analytically involve one substantive question, concerning tax liability, and a separate administrative question, concerning the responsibility to collect whatever tax is due and remit it to the city. While it might appear that the more logical sequence for dealing with these two questions would be to address the existence and extent of any tax liability before assigning responsibility for its collection and remittance, perhaps because only assessments against the OTCs are at issue in this litigation and therefore a determination that they are not responsible to collect or remit any lodging tax should end the matter, the parties and the intermediate appellate court have not addressed the issues in that sequence. ...

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