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City of Duluth Sues Expedia over Unpaid Taxes

The lawsuit-which was filed in February-reportedly has Duluth-area hotels worried that the city will become blacklisted from Expedia's Web site.

The City of Duluth has sued online travel Web site Expedia over claims that it failed to pay taxes on hotel rooms that were booked through the company's Web site.

According to court documents, which were filed February in St. Louis County in Duluth, Expedia has failed to pay the city a yet-to-be determined sum in taxes for hotel stays that it sold through its Web site.

According to the suit, the amount that Expedia owes in unpaid taxes is not known by the city because it does not have access to Expedia's financial records and the company has failed to register and submit monthly tax statements with the city.

"Accordingly, the exact amount of recoverable taxes, penalties, and interest cannot be determined without an equitable accounting as demanded by [the City of Duluth]," the suit said.

The city claims that Expedia's failure to pay the 6.5 percent tax rate on its hotel room bookings violates Duluth city code and Minnesota statutes.

In the complaint, the city said that Expedia has deprived Duluth of "tourism tax revenues that are statutorily allocated to tourism-related attractions and projects that serve a viral public purpose to Duluth."

The city is asking that the court require Expedia to pay taxes on hotel rooms booked through its site and file monthly reports with the city going forward.

In April, Expedia filed an answer to the city's suit, denying that it owed any money in unpaid taxes. The company also said that the city has already collected taxes from the local hotels.

"Imposition of the taxes sought by Duluth would result in double taxation," Expedia said in the filing.

The Duluth News Tribune reported last week that some Duluth-area hotels are worried that the lawsuit will prompt Expedia to blacklist the city's hotels from its Web site-thus resulting in lost revenue for them.

According to the newspaper, Expedia stopped listing hotels in the city of Columbus, Georgia, after the company was ordered to pay future local lodging taxes on the full price it charged customers booking rooms in the community.

"You do have to be careful about biting the hand that feeds you," Karen Pionk, general manager of the Sheraton Duluth, told the Duluth News Tribune.