A federal appeals court ruled today that the city of Oakland has to go through some administrative hoops before it can sue to collect money it claims it is owed in hotel tax payments from online travel companies.

The 9th U.S. Circuit Court of Appeals in San Francisco said Oakland acted prematurely in filing a federal lawsuit against 10 online travel companies in 2007.

A three-judge panel ruled that Oakland must first go through administrative procedures to assess and collect the alleged tax due, saying, “This is a classic case of jumping the gun.”
Oakland’s hotel tax requires that hotel guests pay a levy of 11 percent of a hotel room’s cost. A measure to increase that tax to 14 percent will be decided by Oakland voters in a vote-by-mail election Tuesday.

The lawsuit claimed the Internet travel companies charged customers for a tax on the retail cost of hotel rooms but paid Oakland only the tax on the wholesale cost and kept the difference.

Monique Olivier, a lawyer for the city, said the alleged shortfall in tax remittances could potentially amount to several million dollars per year.

Olivier said the city is unlikely to appeal further. She said the city began the administrative process after receiving an unfavorable ruling from U.S. District Judge Saundra Armstrong in 2007, but said that process has not yet been completed.

In today’s decision, the appeals court upheld Armstrong’s dismissal of the lawsuit, but said Oakland could re-file the case after going through the administrative process.

Internet travel companies named in the lawsuit include Hotels.com, Orbitz Inc., Travelocity.com and Expediea Inc., among others. A lawyer for the companies was not immediately available for comment.

Similar lawsuits have been filed by other cities around the country, including Los Angeles, San Diego, Atlanta and Philadelphia. In most cases, courts have agreed that the cities must complete administrative procedures before filing suit.

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