in construing tax ordinances it is mandatory nonetheless in this court case the district court admitted it disregarded material terms of the ordinances in determining one what is tax and two who collects and as a result i think there are two reasons that the o t c is or entitled to judgment as a matter of law first one which the district court decided that what is tact is q is a pure question of texas law it refused to follow the city of houston opinion which interpreted in a dental texas ordinance and held that the amount the o t c has paid the hotel on the occupants behalf was the amount that is taxed second issue  there is no evidence that the o t c control hotels and as a result the ordinances do not apply to the o t c we call that the who issue let me discuss what first again th court was very clear what he did he decided this is a matter of pure texas law that's what he said and he said under texas rules the statutory construction his words not mine we think he got it wrong for two reasons first off the city of houston reaches the exact opposite conclusion and secondly he had knowledge that he directly wrote out of the ordinance the language to the hotel which was crucial to the city of houston and the pinion now city fusion was decided eighteen months before the first final judgment in this case was entered and its rulings are pretty direct first he concluded that the ordinance imposed what was taxed was actually the amount of the occupants paid to the o t c as that was rejected by the city of houston court second there were two quote absurd result rulings by the district court first one was well the since the occupant never pays the hotel then the real truth of the matter is that that's an absurd result you cannot interpret the statute that way but what the city of houston said he has not right truth of the matter is by the occup context indicates a different meaning you apply that and that was the commercial establishment providing rooms which really is the definition in any of them now the district court on the city's urging decided not to apply the city of houston for three reasons and the cities have now added in the recent letter to you a fourth first they said that the city of houston opinion was limited to the the that ordinance and indicated implied without saying that actually that there was some difference in the ordinances second they said that the evidentiary records differ third that the city of houston opinion misapplied texas statutory construction law the cities now say in the letter you just received last week that there were different legal arguments made in the city of houston we believe all that to be wrong let me show you one first off the ordinances or materially adenike will in this case i mean after all city of houston was a member of this class and it was certified as a member of this class and later opted out the court held that it  but what difference would that make both court applied legal theories city of houston was a motion for summary judgment case that was appealed this court said he decided it as a matter of pure texas law the minute they record would not make any difference but regardless and they talk about the month long trial it was only issue of control on who is tax not on the what issue that the city of houston dealt with nonetheless the ordinances were in the record the o t c testimony was in the record the contracts between the hotels and the o t series were in the record i don't think there's court opinion note that the city of houston requested the court to take some sort of judicial notice or apply the findings and conclusions of law and usually entered by the district court and the client to do so i think based on the lengthy footnote based on something about some sort of differences or whatever but how do you how do you pitch the fact that the city of houston would not incorporate the fines and pollutions of the federal district court to ease your honor first off and importantly remember the findings of fact and conclusions of law in the city of houston were related somewhat to the the none the less what the courts say it is either one or two things are true either everything is a democrat and them we're looking at what the record is or something is different and that is something we couldn't consider there is no  that the majority of the city of houston's argument to the houston court of appeals was based on the finding of fact conclusions the arguments were denah coal is well the legal arguments now the cities tell you that they work there was in fairness there is one difference the city of houston did not take on the issue or quarrel with the concept that tax statutes are strictly construed against the government that is the only difference and will  difference we think that's correct now finally the statutory construction law did the city of houston court of appeals get that right it did now what they really complain about is first they say as well they never considered  the city of houston's arguments or whether their interpretation was right factually that's not true legally it has there's a different reason for that if you look at page seven ten seven twelve of the opinion you'll see they address the the court of appeals addresses the city of houston's argument mostly importantly look at footnote five six and nine and they take on specific arguments by the way this i made here and reject them one after another including the controller's letters which they find were based on different facts than what the true facts that were in fact they said the hypothetical faction those opinions contradicted the undisputed  those facts are the same ones we have here now the legal thing the next criticism that the city's convinced the district court to take is this that wants there was a determination that the taxpayer or the  the o t c interpretation of the ordinance was reasonable there was no use there was no need to determine whether the city's interpretation was reasonable relying on bullet versus statistical tabulations nine hundred seventy seven texas supreme court case here's basically what the court held they said if the tax payers interpretation is reasonable and the government is to it is ambiguous and if sam big us we interpreted against the government so the taxpayer whims now they say that's not texas law but in two thousand and thirteen the texas supreme court is decided track down also it's not dealing with this ordinance and it's dealing with a different matter entirely or different type of tax but tracked phone demonstrates the court of appeals got it right here what they said first footnote forty three a farm bullock boat versus the testicle tabulations where is the law and they applied the same methodology as did the court of appeals and city of houston and they said because the tax payer interpretation was reasonable if also the government was it would be an ambiguous statute in half to be construed against the government saying we consistently applied the ancient taxpayer presumption that the reach of an ambiguous tax statute must be construed strictly against the government specifically if you look at heading roman to be on page one eighty two that precise tactic made here's what the city say city say well that's not right and the truth of the matter is in this case the ots cities were charged with collecting the tax there and the government and the presumption doesn't apply tract on proves that wrong to interact on what happened was the providers of prepaid cell phone were directed just like the o t c i mean cheeseman the hotels are here to collect  and they disputed the tax and the presumption applied to the person collecting the tax and remitting it to the government so that does not work truck phones has a couple of other things that are important says that they have the tax must apply unequivocal blee from the face of the statute any gap feeling can't be done by courts but should be done by the legislature and finally when new technology is governed by statutes that did not anticipate that technology and this is page one seventy eight of the opinion that what you do is the old statute may apply if it's broad enough to do so but if it's not it does not now the real difference here the real difference in these two cases is the interpretation and method of interpretation by the district court in the city of youth truth of the matter is in this case the district court specifically hel he ignored the language to the hotels wrote that out of the statute and thought it would lead to a certain result and the sit in did it on the city's request and by the way in the city of houston the court of appeals rejected request you know and that the law is it in texas is just like us in this circuit just mark that judge barksdale your opinion u s versus chan sign you will void interpretations that right out a matter of part of the stage or mike it's a purposeless is the same holding of the u s medal versus liberty mutual and spradling versus jim walter home so i think though those are those issues i'm going to briefly talk about who and who pays the tax it is an issue of control remember not everybody is trying with remitting taxes you have to own operate manage or control a hotel there were no allegations we did anything but judgment we did both before and after that's that's exactly right your honor you simply agreed that controlled the definition of control was for just the jurors every day definition of controlled yes your honor and the way this court has traditionally review that is my dictionary type definitions we think that's appropriate the suggestion of the cities that you would look at it could mean anything the jury wanted it to mean control could mean pig that's not what the the standard is at all and in fact the jury was instructed on that and basically told to use their own understanding of playing an ordinary meaning and i think that is important the statute helps us a little bit there though and and third section thirty one seventy see dealing with reporting of the statute says that the person in who must verify the report is the person in control of business fact that the o t c are or are not required to collect and remit the tax on the amount subject to tax let's remember this is a hotel occupancy tax and that's important that we're taxing hotel occupancy and that raises the question which are two transactions in a merchant model are subject to tax the transaction between the o t c and the occupant the retail transaction or the wholesale transaction between the hotel and the old d c only one of those two transactions involves the occupant and involves the selling of occupancy which is the retail tr retail rate let's call that the one hundred dollars and that is what is subject to tax doesn't go to the hotel that doesn't pay for the occupancy that has a profit margin in that for the booking company that's all part of occupancy you cannot opt out you cannot just say i'm only going to pay the eighty dollars and get a room call the hotel direct and get your the eighty dollars rate that that's wrong and that's wh where if you book let me give you three examples because i think this is important i go to the hotel and pay one hundred dollars for that room taxes based on the one hundred dollars i booked through no t c using an agency model we're where we're there just all i have is a reservation i don't pay the o t c anything i have no contract with the o t c i shop at the hotel i pay them the same hundred dollars o t c gets back in commission that transaction also is taxed at the same charges the customer the same hundred dollars free folks checking in at the same time each paying one hundred dollars for that room only under the merchant model is there a lower tax about this eighty dollar tax amount and the texas supreme court instructs if we have to look at quote the essence of the transaction or the true object of the transaction and it also struck us that we need to look at the quote economic realities of the transaction i would submit to you the economic realities of the transaction or in each case if the customer is paying one hundred dollars to occupy that room why would it be any lesser amount would be like going and buying a shirt that macy's and in the sales tax being based on the price that makes these paid to acquire that sure it's what the retail customer pays is a hotel occupancy tax in that second transaction where after the occupancy occurs the eighty dollars let's say a month later is paid from the o t c to the hotel that's not for occupancy occupancy has already occurred that is a total post r p c transaction to which the argument is not even a party and to further the point you the o t says don't charge separately for their services you can search the internet for free you can search for three days to bake a booking or you can search for three seconds it's the same chart and by that analogy judge clement in terms of if it were eighty dollars that would be do the hotel provides no same services which went wrong with the interpretation of the ordinary just about a  decision we do believe that the houston court got it well in one fundamental respect it's applied this one side only rule of construction work specifically states as much as the o t sees try to learn from that it says we do not consider whether houston's interpretation is also reasonable it would be as if you again is if you read their opening brief said that's reasonable nobody need to read the city's brief were persuaded you cannot tell sometimes interpretation is reasonable the less you see the other side's viewpoint on that so we believe that was the fundamental legal issue and there is no case no truck with that that makes sense to me why should they have to clean up their opinion going down another rabbit trail if the law has got to be construed strictly against the taxing body and in favor of the taxpayer you never get to the rule of construction against the tax and body down as a rule of last resort you apply all of the primer rules of construction what is the intent of the legislation what is the plain language what is the overall context of this hotel occupancy tax would a ruling lead to absurd results but most fundamentally the core discussed all that based on the record before so that it is in response to your question our most fundamental argument ard position does not rise or fall on whether the city of houston got it right we could stipulate that the city of houston based on the factual record before it got that decision right the question is a question based on would lose i would but i would say not but let me say again going to the point it is not a pure question of law the houston court in its first in its first words out of the box very first sentence says this the outcome of each otel tax case depends on the evidence introduced and that and remember that case was that case did not convey all the control issues so mr keller said oh this is just a pure before the court that is what was so fundamentally different the evidence we had thirty eight witnesses they had the the twenty eight of whom were o t c current or former witnesses the other side well the city of houston had no o t c witnesses they submitted evidence on and in fact here's what the what they relied upon in this is what the court says the court said in houston the facts and they put that in quotes then houston sites are in reality the that's what the city of houston says here's this they take the findings in the city of anaheim taze this is what we're relying on and that used in court rightly said what are you talking about that's not even evidence in and so it was critical and let me give you some just some differences because what judge what the trial court said in this case is the houston court's decision treats this as if it's an agency model and the agency model again is fundamentally different than the merchant model and as a result because it treated as an agency model it's its decision was influenced by that and what the court in texas said is the houston courts description of the merchant model is diametrically opposed to much of are merchant model operates nationwide not only in these two cases but nationwide it is the same merchant model but the question is what is the evidence on how that merchant model actually operates what evidence was before the houston court versus opposite on the most fundamental level the houston court talks about a reservation and as if you're in that they're using an agency model concept when talking about a reservation what they say is in houston the hotels offer occupancy in exchange for the payment of the discounted rate while the o t c merely have websites and provide information that is not the evidence in san antonio it's no that the o t c is merely have websites and provide information that evidence was in a merchant model transaction the o t c these are the ones that convey the right to occupancy and that is critically important operate the merchant model the same in every jurisdiction that's not a dispute but the question is we've got to present the trial court with evidence how in fact does that model operate so what you had in houston w one sided presentation by by the o t c who said here's our top rates we don't have occupancy to sell we don't handle the cancellation policies we dealt collect taxes ok in our case we showed they do have occupancy to sell they do collect taxes they do have their own cancellation policies all of those control factors all of those factors do go to what is occupancy so i cannot stress enough and the houston court said in three different times including in its closing began in it here's what the court said in ended judge dennis it said this we conclude that for purposes of houston's ordina only base the decision on the evidence that was presented and houston submitted no evidence on that and again just going back to let me address also the o t c people testify and in c say we don't collect taxes well of course they collect they collect one hundred percent from the article so on that issue that was the only evidence before the houston court otis's do not collect taxes in our  pay the tax on their markup and that the ordinary sampling does not support that if you could be you could have an ordinance are law that may d o t see collect tax but this ordinance is just like the one in the city of use in case it doesn't impose that duty on the o t c it imposed on the hotel owner operator that's what it has to collect the tax and remit it in any you know you we don't agree that the hotels off the hook the one who owns operates managers or controls whoever that is is responsible collecting the tax the hotel is the tax alternately doesn't get paid if you have a hotel owner they remain responsible for remitting the back to let's just go to the fish and see of the evidence was there sufficient evidence that the o t seize control the hotels and therefore were required to collect in remit and there was a wealth of evidence that fact and let's remember it's not like they're not already doing it that's why they fought so hard to say they didn't collect taxes as a matter of fact they collect my hundred dollars and they collect the taxes associated with one hundred dollars so it's not like if you find them we're sponsible for collecting taxes that you're imposing a duty upon them that they've not already voluntarily assume they are collecting taxes i'm disputed unequivocal they're doing that so all that as a matter of fact and that's what the georgia supreme court in the expedia case says is they were not even saying you know this as a matter of law that you do you're required to collect as a matter of law but as a matter of fact you're collecting and since you've assume duty we're going to hold you to it all right so you're not imposing a new duty on them number one they're already doing it and the evidence fully supports the fact lacking is the tax based on the occupancy rate given  presently in the past they changed that practice but is that so does your rate that is absolutely right presently defacto they collect an amount equal to and greater than the tax on that markup the twenty dollars they call the taxes and fees that first line by the way in my example would show one hundred dollar room rate they were present to the world that the red on the right is one hundred dollars not only one hundred dollars if you hundred dollars by merely inserting oh you're suggesting just parkdale by inserting the o t c he's stepping into the shoes of the tax collector so instead of that one hundred dollar going directly to the hotel the d c interception they get that one hundred dollars they keep twenty and they pass the eighty on to the hotel your suggestion is simple because they've created a new model it's not even really technology you don't need an internet based model to do this but by creating a new business model that somehow that can frustrate the economic reality of this transaction which is to tax that one hundred dollar amount and why would that why would this what would the cities need to do to change that the city's ordinances all tax the privilege of occupancy and if i may just on my last argument just briefly address the pay to the hotel language that is simply a way of saying we've got to pay for the occupant a paid the hotel some ordinances like dowlas and hughes no written that way other ordinances leave out who the occupant and the payer just say we're taxing the consideration for the room i would simply submit that it doesn't matter whether you identify the pay or in the payee or you have five minutes on rebuttal thank your honor and in brief response judge barksdale and in response to your question about why don't the city amanda several have new york north carolina as a state baltimore oregon have all done that to cover the merchant model issue that's important one of the questions that came up i'm going to try to do this chronologically may not work but one of the questions that came up  well there did the people staying in hotels playing different rates is the most first line of the city of houston opinion that's right and that happens all the time last night several of us stayed in a hotel because of my age i got an a a r p rate others interestingly i later learned got a loyalty reward right from an airline there are all kinds and others you could possibly pay a travel agent you could do all those kind of things but the consistent thing is that the amount the hotel recei what is taxed and especially the san antonio ordinance makes that clear in the thirty three sixty and seventy series of their ordinance where they point out that it is the hotel that has to report on all rooms leaped at the hotel and obviously they're going to be different but the consistency is what is under the statute of what the hotel receives it is not if all hotel reservations are made through online travel companies in fact the evidence in this case is under speed it less than five percent of all reservations or o t c reservations for hilton it's between three and four percent so it's not as if it is a pervasive thing that is overriding hotels mr kershaw to mention the essence of the transaction case i must point you again to another texas supreme court case it is called homes versus health care services decided in two thousand and thirteen ripe after track down and it said a page six twenty seven six eight that you don't look to the essence of the transaction if those words are used in the statute you don't look as the court said to the words primary purpose unless those words little vending machine where you had a clone of the drop down and grab things and brought them up and the question was whether the prize was necessary to the operation of the machine that was the economic reality and there was a sales tax political will call that was based on different facts your honor i don't know exactly what to say to that except that it was a summary judgment case in the record were two things we had one hundred fifty pages from seven o t c witnesses two hundred pages from eleven more o t c witnesses thirteen hotel contracts and the ordinance to interpret the ordinance that is pretty much what you need the issue remember in this month long trial here was on control and as you heard mr kershaw he's saying he's absolutely right control was not addressed by the city of houston only the what is tax issue judge didn't you ask a question on the no way for an issue and i think basically what you're asking is is the collection of taxes itself does it have some factual or legal relevant the expedient versus city of columbus case deal solely with a different ordinance and it is the columbus ordinance and i'm going to quote from it persons or entities collecting the tax from a whole taylor motel guest shelter admit the tax there is nothing in any of these ordinances not  what the city of columbus tax does in fact the texas controller says if you charge a tax collection fifty to one person passionate onto the other that's not the same thing as collecting tax that's page twenty one of our brief footnote eighty three bottom line is we think the city of houston control