Link to Mo. Sup. Ct. Opinion
As part of a national trend of similar litigation, St. Louis County and St. Louis Convention and Visitors Commission (CVC) filed suit against Prestige Travel, Inc. (Prestige) and several other online travel companies that contract for discounted motel rooms and then resell the rooms online at a higher price. St. Louis County and CVC claimed that §§ 502.500-502.550 of the revised ordinances of St. Louis County and Revised Statutes of Missouri §§ 67.601-67.626 required these companies to pay certain hotel and tourism taxes, which they had not paid. House Bill No. 1442 (H.B. 1442) was then enacted, exempting such travel companies from the taxes at issue. The circuit court dismissed the case, and on appeal the Supreme Court of Missouri affirmed, holding that Prestige was not obligated under the taxing statutes before enactment of H.B. 1442, and that H.B. 1442 did not violate the Original Purpose, Clear Title, or Single Subject provisions of the Missouri Constitution.
I. Facts and Holding
Revised Statutes of Missouri § 67.657.4 sanctions counties’ imposition of a three and one-half percent “hotel tax” on total sales of hotel and motel rooms to transient guests within the counties, while § 67.619.1 sanctions a separate three-fourths percent “convention and tourism tax” on the same amount of sales.[2] Both the hotel and tourism taxes authorize collection from “[e]very person receiving any payment or consideration upon the use of any sleeping room from the transient guest[s] of any hotel or motel.”[3] In accordance with these enabling statutes, St. Louis County has enacted such hotel and tourism taxes.[4]
St. Louis County and CVC alleged in circuit court that its ordinances required Prestige to collect and then remit the hotel and tourism taxes on the rooms it resold.[5] Prestige filed a motion to dismiss, arguing that only St. Louis County hotel and motel operators were so obligated. Prestige further argued that the difference between the discount room price Prestige contracted for and the increased price Prestige’s customers paid it was actually Prestige’s return for its reservation services instead of a room charge.[6] The circuit court initially overruled Prestige’s motion to dismiss, but H.B. 1442[7] was passed while the case was pending. Prestige filed a notice of supplemental authority and motion for reconsideration citing the new bill.[8] St. Louis County and CVC filed a response acknowledging that H.B. 1442 “eviscerate[ed]” their claims, but that their right to challenge the constitutionality of H.B. 1442 was nonetheless preserved.[9] They further argued in their response that the bill violated the Original Purpose, Single Subject, and Clear Title requirements of Missouri’s Constitution. However, the circuit court dismissed St. Louis County and CVC’s case with prejudice, and they appealed their constitutional claims to the Supreme Court of Missouri.[10]
A. Constitutional Challenges
1. Article III, Section 39(5)
St. Louis County and CVC first contended that H.B. 1442 violated article III, section 39(5) of the Missouri Constitution because Prestige owed St. Louis County an indebtedness, liability, or obligation before the effective date of the bill, which the bill subsequently extinguished without consideration.[11] They alleged that because the language in both taxing statutes focused on the amount paid by the guest rather than the amount received by the operator, Prestige was obligated to collect and remit the taxes.[12]
Prestige claimed that St. Louis County and CVC waived this constitutional challenge because they did not raise it either in their response to Prestige’s motion for reconsideration or in their notice of appeal.[13] Prestige argued that the Appellants had to raise their constitutional challenge at their first opportunity, explicitly identify the allegedly violated constitutional provision, state the facts showing the violation, and continuously preserve the constitutional question for appellate review in order for their claim to succeed.[14] The Supreme Court agreed with Prestige, analogizing the situation to cases where a party fails to raise a constitutional claim in a motion for new trial after a court-tried case.[15]
The court nonetheless explained that even if it had not been waived, this particular challenge was meritless because Prestige was not obligated under the taxing statutes before H.B. 1442 was passed.[16] The court observed that such statutes must be construed strictly, taxes are not to be assessed unless clearly authorized by law, and the rules of statutory construction require that the statutes and ordinances at issue be read in relation to one another.[17] The court proceeded to find that the statutory language was clear when read in context[18] – that the hotel and tourism taxes are levied within the boundaries of St. Louis County[19] and imposed only on hotel and motel operators.[20] The ordinances also specifically allow the director of revenue to file a lien in the city or county where any operator defaulting on these taxes resides.[21] Thus, the court held St. Louis County and CVC failed to show that Prestige’s services were conclusively those of a hotel and motel operator rather than those of a room-reservations facilitator.[22]
2. Original Purpose
Because the first title of H.B. 1442 related to city sales taxes but its ultimate title was less specific, St. Louis County and CVC next claimed that §§ 1, 67.2000, 70.220, 137.1040, and 138.431 of the bill departed from its “original purpose of city sales tax” in violation of the original purpose requirement of Missouri Constitution Article III, Section 21.[23]
The court noted that although a bill’s original purpose is measured at the time of its introduction,[24] the court has continually held that the constitution does not necessitate that the original purpose be stated in the title or anywhere else.[25] Instead, the original purpose of a bill is its general purpose,[26] and as such the constitution prohibits introducing a matter that is not germane or is unrelated to that general purpose.[27] The court further explained that neither modifications causing an extension or limitation of the scope of the bill nor an entirely new matter are prohibited, as long as the modification or new matter is germane.[28] The court found the original purpose of H.B. 1442 was the regulation of taxes, which was unaltered by the differing forms of its title.[29]
In response to St. Louis County and CVC’s assertion that § 67.2000 was not germane to regulating taxes, the court found that because the section permitted a sales tax within an exhibition center and recreational facility district, it was germane to the original purpose of H.B. 1442.[30] The court also found, contrary to the Appellants’ contentions, that because § 70.220 provides that municipalities or political subdivisions can form contracts to share tax revenues with other municipalities and political subdivisions, it was also germane.[31]
3. Clear Title and Single Subject Challenge
Finally, the Appellants claimed H.B. 1442’s title at introduction was so general that it did not fairly impart to the legislature or to the public what it comprised, contravening the clear title and single subject provisions of the Missouri Constitution.[32] They also argued that §§ 67.2000, 70.220, 137.1040, and 138.431 of the bill were unrelated to regulating taxes.[33] St. Louis County and CVC urged that the bill therefore be wholly invalidated.[34]
The court noted that Appellants’ constitutional challenges did not require much analysis and were without merit due to the holding in Hammerschmidt v. Boone County.[35] Hammerschmidt mandated that courts sever individual provisions claimed to be constitutionally invalid instead of quashing an entire bill, and that severance is proper when the court is certain beyond a reasonable doubt that the challenged provisions are not vital to the bill’s effectiveness.[36] The court found that the contested sections of the bill each implicated individual tax-related provisions, but that even if independently they would fail a constitutional challenge, the sections were not vital to the effectiveness of H.B. 1442.[37] The court reasoned that the sections were not such that the legislature would not have passed the bill without them, nor would the hotel and tourism tax provisions be deficient or impossible to implement according to legislative intent if they were separated.[38] As the court presumes severability, if the disputed provisions were invalidated, they would be severed from the bill without quashing it entirely.[39] Thus, the court affirmed the judgment of the circuit court.[40]
II. Legal Background
A. Online Travel Company Litigation
Online travel companies are involved in extensive litigation like Prestige Travel throughout the country.[41] Typically, online travel companies contract with hotels for discounted room rates that they then offer to customers who reserve rooms through these companies’ internet sites.[42] The customer pays the online travel company a retail price for its booking.[43] Part of that amount is transferred to the hotel as the wholesale room rate plus taxes on that rate, while the remainder is retained by the company as a facilitation or service fee.[44] The hotel must then remit the taxes on the room.[45] In general, cities are filing suit against these online travel companies in order to claim what they deem unpaid sales or innkeeper’s taxes on the retail price companies are receiving for the hotel rooms, while the companies are arguing that such taxes should only be based on the wholesale room rate.[46] The basic inquiry that these state and local tax jurisdictions are grappling with is whether online travel companies are businesses that actually rent hotel rooms, or businesses that simply provide a service to a hotel that then rents its own rooms.[47] Interpretation of the differing state and county tax codes complicates the issue.[48]
Prestige Travel represents a decision in favor of online travel companies, but not all cases have had the same outcome. In a recent 4-3 opinion, the Supreme Court of Georgia enjoined Expedia from offering room reservations that do not include the city of Columbus’s 7% excise tax on the total amount paid by customers.[49] The court ruled that because Expedia agreed to collect taxes from customers who book through its site, it had to pay the full amount demanded by the city.[50] However, the dissenting justices argued that this obligation applies only to innkeepers.[51] As a result of such litigation, Expedia and other major online travel companies have “delisted” hotels in cities like Columbus.[52]
B. Prestige Travel
Article III, section 23 of the Missouri Constitution provides that: “[n]o bill shall contain more than one subject which shall be clearly expressed in its title.”[53] This provision, combined with article III, section 21’s statement that “no bill shall be amended in its passage through either house as to change its original purpose,” operates “to facilitate orderly legislative procedure . . . the issues presented by each bill can be better grasped and more intelligently discussed.”[54] The Single Subject provision also inhibits “logrolling,” the attempt to merge several dissimilar amendments into a single bill, and “riders,” the attempt to attach an unrelated amendment to a bill in order to garner adequate votes for a bill’s entire passage.[55] Article III, section 23 overcomes surprise and legislators’ efforts to take advantage by appending these disparate amendments onto a pending bill.[56] Finally, the provision ensures that the people are informed of the subjects of legislation under consideration so that they have an opportunity to be heard.[57]
The Supreme Court of Missouri in 1994 established the precedent courts continue to follow today when assessing constitutional challenges to bills, and whether total invalidation or severing portions of the bill is the proper outcome.[58] In Hammerschmidt v. Boone County, the court struck down two bills that it determined violated the Single Subject provision of the Missouri Constitution.[59] The court found that upon ascertaining that a bill includes an unconstitutional subject, the whole bill is unconstitutional unless a court is persuaded beyond a reasonable doubt that one of the bill’s subjects is its original purpose and the other is not.[60] Courts should then consider whether the additional subject is essential to the efficacy of the bill, whether it is a provision without which the bill would be incomplete and unworkable, and whether the provision is one without which the legislators would not have adopted the bill.[61] If the court ultimately determines the bill contains an original purpose, it should sever the additional subjects to allow the controlling subject to remain.[62]
III. Comment
Hotel tax codes, like those in the instant case, often provide that taxes are paid by travelers based on the amount the hotel receives and remitted specifically by the innkeeper or hotel operator. Because most online travel companies operate as service providers or facilitators to hotels instead of as re-sellers or re-renters of rooms, they should not be classified as innkeepers so as to be obligated under these tax laws. While it is important for our state and local governments to be able to accumulate revenue needed to provide services to constituents, any successful attempt at tax collection in this manner would only obfuscate current tax codes and impose unfair burdens on companies that, in actuality, stimulate local and interstate commerce. As such, the Supreme Court of Missouri’s decision in Prestige Travel reflects the correct outcome in this type of litigation, and hopefully a growing trend of other court opinions. Specifically, this case should signal to other Missouri counties with similar tax provisions that any comparable claim would be unsuccessful.
However, the doctrine of severance created in Hammerschmidt and revisited in this case has not been universally esteemed and supported, as there have been arguments that it actually impairs the legislative process and the doctrine of separation of powers. One argument in favor of striking down an entire bill when a portion of it is deemed unconstitutional is that severance fails to act as a disincentive to the legislators who append these unrelated amendments to bills.[63] Riders can simply be reattached to another bill with negligible political repercussions.[64] However, if the entire bill were invalidated, other legislators would be less likely to negotiate with the perpetrator-legislators, and citizens would be angered by the delay or failure to enact important legislation.[65] Another argument against severance is that it endangers the separation of powers.[66] If courts sever only part of a bill, they may be undermining the legislative process by permitting legislation that might not have otherwise obtained sufficient votes to become law.[67]
In response to these arguments, the Supreme Court of Missouri noted, “[a]s the frequency of litigation increases . . . there may come a time when this court should reconsider whether the judicial doctrine of severance has served to support and protect the Missouri Constitution.”[68] This ominous statement may foreshadow the doctrine of severance’s demise. However, there are weaknesses to the arguments against the doctrine. For instance, if courts routinely invalidate entire bills, the delay caused to the legislative process would be cumbersome – perhaps a result more detrimental than legislators’ use of riders. Further, the separation of powers argument could just as easily swing the other direction if courts begin to increasingly strike down legislation instead of traditionally endeavoring to defer to the legislature. Though the court has indicated its willingness to revisit its exercise of the doctrine of severance in the future, whether it upholds the doctrine is not the clearly correct outcome. Our system, in which the judiciary and the legislature share the role of creating and ensuring constitutional law, is fraught with such issues as identified in the arguments against severance. However, as also illustrated by opposing arguments, these issues are not easily solved, and attempts to do so may only result in new problems.
- Jackie Whipple
[1] No. SC 91228 (Mo. June 28, 2011) (en banc), available at http://www.courts.mo.gov/file.jsp?id=47571. The West Reporter citation is St. Louis County v. Prestige Travel, Inc., 344 S.W.3d 708 (Mo. 2011) (en banc).
[2] Id. at 6-7.
[3] Id. at 7.
[4] Id. at 6.
[5] Id. at 2.
[6] Id.
[7] The bill was titled “[a]n Act to repeal [eleven statutory sections] and to enact in lieu thereof nineteen new sections relating to taxes . . . .” It included section 1, which provided: “[n]otwithstanding any other provisions of law to the contrary, any tax imposed or collected by any municipality, any county, or any local taxing entity on or related to any transient accommodations, whether imposed as a hotel tax, occupancy tax, or otherwise, shall apply solely to amounts actually received by the operator of a hotel, motel, tavern, inn, tourist cabin, tourist camp, or other place in which rooms are furnished to the public. Under no circumstances shall a travel agent or intermediary be deemed an operator of a hotel, motel, tavern, inn, tourist cabin, tourist camp, or other place in which rooms are furnished to the public unless such travel agent or intermediary actually operates such a facility . . . This section is intended to clarify that taxes imposed as a hotel tax, occupancy tax, or otherwise shall apply solely to amounts received by operators, as enacted in the statutes authorizing such taxes.” Id. at 3.
[8] Id. at 2-3.
[9] Id. at 3.
[10] Id.
[11] Id. at 4 (citing Beatty v. State Tax Comm’n, 912 S.W.2d 492, 498 (Mo. 1995) (en banc)).
[12] Id. at 7.
[13] Id. at 4-5 (quoting Callier v. Dir. of Revenue, State of Mo., 780 S.W.2d 639, 641 (Mo. 1989) (en banc)).
[14] Id. at 5 (citing United C.O.D. v. State, 150 S.W.3d 311, 313 (Mo. 2004) (en banc)).
[15] Id.
[16] Id. at 6, 8.
[17] Id. at 8.
[18] See Lane v. Lensmeyer, 158 S.W.3d 218, 226 (Mo. 2005) (en banc).
[19] See St. Louis County, Mo., Rev. Code § 502.500, available at http://library.municode.com/index.aspx?clientID=11512&stateID=25&statename=Missouri.
[20] Prestige Travel, No. SC 91228, slip op. at 8-9 (citing St. Louis County, Mo., Rev. Code § 502.530).
[21] Id. (citing St. Louis County, Mo., Rev. Code § 502.545).
[22] Id. at 9.
[23] Id. at 10. Article III, Section 21 states, “No law shall be passed except by bill, and no bill shall be so amended in its passage through either house as to change its original purpose.” Mo. Const. art. III, § 21.
[24] See Stroh Brewery Co. v. State, 954 S.W.2d 323, 326 (Mo. 1997) (en banc).
[25] Prestige Travel, No. SC 91228, slip op. at 10.
[26] See McEuen ex rel. McEuen v. Mo. State Bd. of Educ., 120 S.W.3d 207, 210 (Mo. 2003) (en banc).
[27] Prestige Travel, No. SC 91228, slip op. at 10-11.
[28] Id. at 10-11 (citing Stroh Brewery Co., 954 S.W.2d at 326).
[29] Id. at 11.
[30] Id.
[31] Id.
[32] Id.
[33] Id.
[34] Id. at 12.
[35] Id. at 11-12. (citing Hammerschmidt v. Boone County, 877 S.W.2d 98, 103 (Mo. 1994) (en banc)).
[36] Id. at 12-13 (citing Hammerschmidt, 877 S.W.2d at 103-04).
[37] Id. at 13.
[38] Id.
[39] Id. (citing Hammerschmidt, 877 S.W.2d at 103-04; Rizzo v. State, 189 S.W.3d 576, 581 (Mo. 2006) (en banc); Nat’l Solid Waste Management Ass’n v. Director of Dept. of Natural Res., 964 S.W.2d 818 (Mo. 1998) (en banc)).
[40] Id. at 14.
[41] Jess Reagan, Update on Online Travel Company Litigation, 4 (June 13, 2011), www.taxadmin.org/fta/meet/11am/PPTs/reagan_061211.pdf.
[42] Joseph Henchman, Director of State Projects, Tax Counsel, Cities Pursue Discriminatory Taxation of Online Travel Services, 4-6 (Feb. 2010), http://www.taxfoundation.org/files/sr175.pdf
[43] Id.
[44] Id.
[45] Id.
[46] Id.
[47] Id.
[48] Id.
[49] T.J. Evans, Online Travel Companies Find Issues with Hotels Extremely Taxing: Georgia’s Hotel-Motel Occupancy Excise Tax and Expedia, Inc. v. City of Columbus, 61 Mercer L. Rev. 1263 (2010), available at http://www2.law.mercer.edu/lawreview/files/61413.pdf
[50] Id.
[51] Id. at 1276-77.
[52] Jess Reagan, supra note 41, at 6.
[53] Mo. Const. art III, § 23.
[54] Hammerschmidt, 877 S.W.2d at 101.
[55] Id.
[56] Id. (citing State ex rel. Normandy Sch. Dist. of St. Louis County v. Small, 356 S.W.2d 864, 868 (Mo. 1962) (en banc)).
[57] Id. at 102.
[58] Prestige Travel, No. SC 91228, slip op. at 12-13.
[59] Hammerschmidt, 877 S.W.2d at 99.
[60] Id. at 103.
[61] Id. (citing Mo. Rev. Stat. § 1.140 (1986)).
[62] Id.
[63] Michael D. Gilbert, Single Subject Rules and the Legislative Process, 67 U. Pitt. L. Rev. 803, 867 (2006).
[64] Id.
[65] Id. at 867-68.
[66] Alexander R. Knoll, Tipping Point: Missouri Single Subject Provision, 72 Mo. L. Rev. 1387, 1392-93 (2007).
[67] Id.
[68] Prestige Travel, No. SC 91228, slip op. at 12, n.6.
