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Lawsuit targets online travel companies on behalf of Nevada taxpayers

Posted at 9:36 AM, Dec 02, 2020
and last updated 2020-12-03 02:10:19-05

LAS VEGAS (KTNV) — Clark Hill PLC has filed a qui tam lawsuit in Clark County’s Eighth Judicial District Court alleging that some of the nation’s largest online travel companies collectively withheld hundreds of millions of dollars in Nevada state tax payments across multiple years.

The suit is a qui tam filing, a type of lawsuit in which whistleblowers are rewarded in successful outcomes where the government recovers money lost to false claims or other kinds of fraud.

The case was brought by two prominent Las Vegans in the communications business, Sig Rogich and Mark Fierro. Their group has been working on background information and preparation for the suit for several years.

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The lawsuit outlines that travel companies contract with hotels for the right to purchase rooms at discounted wholesale prices. The online travel companies then sell the rooms to the public at higher retail prices plus additional fees, charging the customers’ credit cards for the entire amount.

For example, an online travel company may obtain a room from a hotel for $150 and sell it to a customer for $200.

The lawsuit alleges that although the law requires the companies to pay taxes on the total amount of $200, they were instead transmitting taxes based on the lower wholesale price of $150.

According to the complaint, the funds improperly diverted from state tax coffers amount to hundreds of millions of dollars. If you take nearly 150,000 hotel rooms at a 90% annual occupancy rate and multiply the tax dollars across a number of years, the amount of revenues owed to Nevadans is staggering, according to the complaint.

Attorneys with Clark Hill work through the attorney general’s office, but because the case is so complex and will require the involvement of multiple attorneys with various backgrounds, it became clear that this was outside the parameters of the normal course of business for state office.

Dominic Gentile, an attorney representing people filing on behalf of the state says this violates state law. More than 20 online travel companies are named in the suit and Gentile believes they have all done this deliberately.

“I’m sure they have hired outside counsel to give them opinions on whether they can do this or not,” he said.

He wants the sites to follow the rules in the future and also pay back seven years’ worth of back taxes. Gentile says the money from this lawsuit is in the hundreds of millions in room tax revenue.

Jeremy Aguero from Applied Analysis says around $800 million a year is generated from the tax where it funds a variety of things like education.

“That’s a big source of revenue that goes to funding not only the construction of schools but also the operations of schools as well,” he said.

Gentile says that’s exactly the point of the lawsuit.

“Whether you live here, or you don’t, you benefit from public institutions and public services,” he said.

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The entities most affected by the loss of revenue, according to the complaint, include the Las Vegas Convention and Visitors Authority, the Clark County School District, transportation districts, the Nevada Department of Tourism, the state of Nevada general fund, the Clark County General Fund, the state’s Distributive School Account, the Clark County School District Bond Fund for school construction and other entities.

Financial analyst Steve Budin says cases like these usually result in settlements where companies are forced to pay up.

“These lawsuits rarely go to trial. Usually, there’s some sort of settlement, so any nickel or dollar we get in a settlement is more than we had before,” he said.

But Gentile says his focus is still on moving the lawsuit to a jury trial.

“I just want the taxpayers of Nevada to get what they’re entitled to,” he said.

Because online travel companies do not select the city to which customers are traveling, the suit will not affect the volume of travel to Las Vegas.

13 Action News reached out to several online travel companies but no immediate response was given. Attorneys say they hope to present the lawsuit to a jury in about two years.