NOTICE: NOT FOR OFFICIAL PUBLICATION.

UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL

AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

IN THE

ARIZONA COURT OF APPEALS

DIVISION ONE

CITY OF PHOENIX, et al., Plaintiffs/Appellees/Cross-Appellants,

v.

ORBITZ WORLDWIDE INC., et al., Defendants/Appellants/Cross-Appellees.

Nos. 1 CA-TX 16-0016; 1 CA-TX 16-0018

(Consolidated)

Appeal from the Arizona Tax Court

Nos. TX2014-000470; TX2014-000471; TX2014-000472; TX2014-000473; 

TX2014-000474; TX2014-000475

(Consolidated)

The Honorable Christopher T. Whitten, Judge

AFFIRMED IN PART; REVERSED IN PART AND REMANDED

COUNSEL

Snell & Wilmer, L.L.P., Phoenix

By Barbara J. Dawson, Andrew M. Jacobs, Rebekah Elliott

Co-Counsel for Defendants/Appellants/Cross-Appellees

Jones Day, Dallas, Texas 

By Deborah Sloan

Co-Counsel for Defendants/Appellants/Cross-Appellees

Kelly Hart & Hallman, LLP, Fort Worth, Texas

By Bryan T. Davis 

Co-Counsel for Defendants/Appellants/Cross-Appellees

FILED 9-6-2018
2

Freeborn & Peters, LLP, Chicago, Illinois

By Jeffrey A. Rossman

Co-Counsel for Defendants/Appellants/Cross-Appellees

Schneider Wallace Cottrell Konecky Wotkyns, LLP, Scottsdale

By Jeffrey R. Finley

Co-Counsel for Plaintiffs/Appellees/Cross-Appellants

Wright Welker & Pauole, PLC, Phoenix

By Scott G. Andersen

Co-Counsel for Plaintiffs/Appellees/Cross-Appellants

Crongeyer Law Firm, P.C., Atlanta, Georgia

By John W. Crongeyer

Co-Counsel for Plaintiffs/Appellees/Cross-Appellants

Bird Law Group, P.C., Atlanta, Georgia

By Alexandria E. Seay, Kristen L. Beightol

Co-Counsel for Plaintiffs/Appellees/Cross-Appellants

Steptoe & Johnson, LLP, Phoenix

By Patrick Derdenger, Bennett Evan Cooper

Counsel for Amicus Curiae Arizona Tax Research

Arizona Attorney General’s Office, Phoenix

By Scot G. Teasdale

Counsel for Amicus Curiae Arizona Department of Revenue

Van Cott & Talamante, PLLC, Phoenix

By Ryan J. Talamante

Co-Counsel for Amicus Curiae American Society of Travel Agents

American Society of Travel Agents, Inc., General Counsel, Alexandria, 

Virginia

By Peter N. Lobasso

Co-Counsel for Amicus Curiae American Society of Travel Agents
PHOENIX, et al. v. ORBITZ, et al.

Decision of the Court

3

MEMORANDUM DECISION

Judge James P. Beene delivered the decision of the Court, in which Acting 

Presiding Judge Peter B. Swann and Judge Randall M. Howe joined.

B E E N E, Judge:

¶1 Orbitz Worldwide Inc. and other travel companies

(collectively the “online travel companies,” or “OTCs”) appeal the superior 

court’s partial grant of summary judgment to the City of Phoenix and other 

cities (“Cities”), holding the OTCs are brokers under the Phoenix City Code

(“Code”)

1 and, thus, subject to transaction privilege tax on their sales of 

hotel rooms. The Cities cross-appeal the court’s partial denial of that 

summary judgment, which barred the Cities from assessing such taxes and 

penalties against the OTCs before 2013. For the following reasons, we 

affirm in part, reverse in part, and remand for further proceedings.

FACTS AND PROCEDURAL HISTORY

¶2 The facts in this case are not in dispute. The OTCs operate

websites that advertise travel services and allow customers to reserve and 

pay for hotel rooms. The OTCs do not own any hotels. Instead, they 

employ a merchant model, under which the OTCs contract with hotels to 

list rooms available for rent on their websites.

¶3 On an OTC’s website, customers reserve hotel rooms by 

providing their personal information, length of stay, and payment 

information to the OTC. The OTC provides the customer with a total price, 

with two line items: the “Reservation Rate” or “Nightly Rate,” and the 

“Taxes and Fees” or “Tax Recovery Charge and Service Fees.” However, 

neither line item is further itemized. The “Reservation Rate”—effectively 

the retail rate of the room—consists of the room rental rate set by the hotel 

plus an additional amount the OTC retains for its services. The Reservation 

Rate does not delineate the amount the hotel retains versus the amount the 

OTC retains. The second line-item, the Taxes and Fees, includes the tax rate 

 

1 In their briefs, the Cities and Orbitz reference the Model City Tax 

Code. Because Phoenix is the named Appellee and the Phoenix City Code 

and the Model City Tax Code are not substantively different, we refer to the 

Phoenix City Code throughout this decision.
PHOENIX, et al. v. ORBITZ, et al.

Decision of the Court

4

the hotel later remits to the city as a privilege tax and an additional service 

fee paid to the OTC, undisclosed to the customer. 

¶4 The OTC appears as the merchant of record on the customer’s 

credit card. The OTC handles the customer’s financial and customer service 

concerns until the customer arrives at the hotel. If the customer does not 

keep a reservation and fails to cancel, the OTC sometimes keeps all of the 

money from the transaction, including the tax. The customer directly pays 

the hotel only for incidentals during the stay.

¶5 After a customer’s stay, the hotel typically invoices the OTC 

for the net room rate and tax the hotel owes on that amount. The hotel then 

pays tax to the city on the amount it receives from the OTC. The OTC does

not pay to the city any tax on its service fees, and the city does not receive 

tax on the money the OTC keeps.

¶6 To illustrate, assume an OTC contracts with a hotel in a city 

with a combined 10% occupancy tax. The OTC and the hotel agree to a net 

rate of $80. The OTC, then, sells the right to occupy the room to a traveler 

for $100, plus $10 taxes and service fee. After the traveler’s stay, the hotel 

invoices the OTC for $80, plus the 10% tax of $8. The hotel remits the $8 to 

the city, and the OTC keeps the remaining $22.

¶7 In 2014, the Cities issued business activity privilege tax 

assessments to the OTCs for a review period of June 2001 to April 2009. The 

Cities argued that the OTCs were engaged in taxable activities under the 

Code §§ 14-444 and -447 for the privilege of engaging in the business of 

operating hotels, or alternatively, for acting as brokers for hotels. The OTCs 

sought redetermination of the Cities’ assessments, arguing that the OTCs

are not subject to the tax because they 1) do not operate hotels and are not 

hotels; and 2) are not brokers.

¶8 The Hearing Officer agreed with the OTCs, finding that the

OTCs are not engaged in the business of operating a hotel and are not 

brokers because they do not act for hotels in the operation of the hotel. Also, 

the Hearing Officer found that, even if the OTCs were brokers under the 

regulation, the taxable portion of the transaction is only the net amount paid

to the hotel, for which audits showed the Cities received remittance.

¶9 The Cities appealed the Hearing Officer’s ruling to the 

superior court and filed a motion for summary judgment, which was 

partially granted and partially denied. The superior court concluded: 1) 

the OTCs did not own or operate hotels; 2) the OTCs “clearly and 

unambiguously fall within the definition of ‘broker’” under the Code
PHOENIX, et al. v. ORBITZ, et al.

Decision of the Court

5

because “the hotel uses the OTC as its agent to obtain business – in short, 

as a broker;” 3) the Cities’ “broker” position constituted “a new 

interpretation or application” under the Code, and the Cities could, thus,

only assess taxes prospectively. See Code § 14-542.

¶10 The OTCs timely appealed the superior court’s rulings. The 

Cities cross-appealed the ruling barring retrospective collection of the tax. 

We have jurisdiction pursuant to Arizona Revised Statutes (A.R.S.) §§ 12-

120.21(A)(1) and -2101(A)(1).

DISCUSSION

¶11 Entry of summary judgment is proper “if the moving party 

shows that there is no genuine dispute as to any material fact and the 

moving party is entitled to judgment as a matter of law.” Ariz. R. Civ. P. 

56(a). We determine de novo whether any genuine issue of material fact 

exists and whether the trial court erred in applying the law, and will uphold 

the court’s ruling if correct for any reason. Logerquist v. Danforth, 188 Ariz. 

16, 18 (App. 1996). We construe the evidence and reasonable inferences in 

the light most favorable to the non-moving party. Wells Fargo Bank v. Ariz. 

Laborers, Teamsters & Cement Masons Local No. 395 Pension Tr. Fund, 201 Ariz. 

474, 482, ¶ 13 (2002).

¶12 This case involves issues of statutory interpretation that we 

review de novo. United Bank of Ariz. v. Allyn, 167 Ariz. 191, 195 (App. 1990); 

State v. Gallagher, 205 Ariz. 267, 269, ¶ 5 (App. 2003). City charters and 

ordinances are construed by the same rules and principles that govern 

construction of statutes. Rollo v. City of Tempe, 120 Ariz. 473, 474 (1978).

¶13 “[T]he best and most reliable index of a statute’s meaning is 

its language and, when the language is clear and unequivocal, it is 

determinative of the statute’s construction.” State ex rel. Montgomery v. 

Harris (Shilgevorkyan), 234 Ariz. 343, 344, ¶ 8 (2014) (citation omitted). “We 

construe the statute as a whole, and consider its context, language, subject 

matter, historical background, effects and consequences, as well as its spirit 

and purpose.” State ex rel. Ariz. Dep’t of Revenue v. Capitol Castings, Inc., 207 

Ariz. 445, 447, ¶ 9 (2004) (quoting State ex rel. Ariz. Dep’t of Revenue v. Phx.

Lodge No. 708, Loyal Order of Moose, Inc., 187 Ariz. 242, 247 (App. 1996))

(internal quotations and marks omitted). Statutes imposing taxes are 

liberally construed in favor of taxpayers and against the government. Id. at

¶ 10.
PHOENIX, et al. v. ORBITZ, et al.

Decision of the Court

6

I. The OTCs are brokers engaging in a taxable activity under 

Phoenix City Code Section 14-444.

¶14 In section 14-444, the Code imposes a tax on “the gross income 

from the business activity of every person engaging or continuing in the 

business of operating a hotel charging for lodging.” Code § 14-444. The 

OTCs are included under this section because: a) they are brokers; b) they

provide services generally performed in operating a hotel; and c) their 

service fee is part of the entire amount a customer must pay for the 

lodging—the taxable gross income. 

A. The OTCs are persons under section 14-444 because they are 

brokers.

¶15 The Cities argue the OTCs are “persons” under this ordinance 

because they are hotel room brokers. The OTCs counter the definition does 

not apply to them because they do not own or operate hotels. The Code

generally defines “person[s]” as any “individual, firm, partnership, joint 

venture, association, corporation, estate, trust, receiver, syndicate, broker, 

the Federal Government, this State, or any political subdivision or agency 

of this State.” Code § 14-100 (emphasis added). The Code, then, specifically

defines “broker” as “any person engaged or continuing in business who 

acts for another for a consideration in the conduct of a business activity 

taxable under this Chapter, and who receives for his principal all or part of 

the gross income from the taxable activity.” Code § 14-100. The superior 

court concluded that the OTCs “clearly and unambiguously fall within the 

definition of ‘broker.’” We agree.

¶16 Under the Code, the OTCs are brokers for the following four

reasons: 1) they act for hotels by providing advertising, booking, and other 

hotel services; 2) they accept payment for their services from travelers; 3) 

they accept consideration for their services from hotels; and 4) they assist 

hotels with taxable hotel operations.

¶17 First, the OTCs act for hotels by advertising available rooms,

soliciting customers, collecting customer information, processing payment, 

and handling certain aspects of customer service. While the OTCs argue 

they merely provide information and services to travelers, they facilitate

additional services to travelers by taking on numerous duties of the hotel 

during the booking process.

¶18 Second, the OTCs earn consideration for their actions in the 

form of service fees. They argue they are not brokers under the Code

because the traveler pays the fees in consideration for their services. But the 
PHOENIX, et al. v. ORBITZ, et al.

Decision of the Court

7

Code does not specify who must pay the consideration, only that 

consideration is exchanged.

¶19 Third, the OTCs perform hotel operations, for which hotels 

exchange consideration. The OTCs claim customers pay their fees for the 

information compiled on their websites and ease in the booking process.

However, advertising and booking are essential hotel operations that the 

OTCs assume. The OTCs, thus, receive consideration for acting on behalf 

of the hotel, as contemplated by the Code. See Code § 14-100. Additionally, 

hotels agree to take a smaller amount of revenue in OTC-facilitated 

transactions in exchange for the exposure to a wider customer base the 

OTCs provide. This loss in revenue, in exchange for services and access to 

customers, is also a form of consideration.

¶20 Fourth, although the OTCs argue they do not directly engage 

in business activities taxable under the Code, the taxable activity is 

furnishing hotel lodging to customers. Not only do the OTCs collect the 

entire amount of fees for lodging on behalf of hotels, but they also assume

advertising, booking, and customer service duties for hotels.

B. The OTCs provide services performed in the business of 

operating a hotel.

¶21 The OTCs correctly point out that they do not perform all of 

the functions involved in operating a hotel; however, defining brokers as 

those who perform all aspects of hotel operation is contrary to the Code’s 

plain language. See Harris (Shilgevorkyan), 234 Ariz. at 344, ¶ 8. Brokers are 

included as “persons” under § 14-444, and all “persons” must pay tax on 

the total amount of revenue they generate from hotel operations. The 

OTCs, as brokers, assume a number of duties hotels generally perform. 

Thus, brokers must pay tax on the income they generate from performing 

those operational duties. Applying the Code only to those who perform all

operational functions of a hotel would render the broker definition 

superfluous. See Phx. Newspapers, Inc. v. Dep’t of Corr., 188 Ariz. 237, 244 

(App. 1997) (“We presume that the legislature does not enact superfluous 

or reiterative legislation.”).

C. The entire amount the OTCs collect from a customer is the 

taxable gross income for the lodging transaction.

¶22 The OTCs contend the revenue they collect is not the gross

income paid for hotel lodging; instead, the customer pays a certain amount 

for the hotel stay and a separate amount the OTC retains as a service fee. 

However, Code section 14-100.1 provides:
PHOENIX, et al. v. ORBITZ, et al.

Decision of the Court

8

(a) For the purposes of proper administration of this chapter 

and to prevent evasion of taxes imposed, brokers shall be 

wherever necessary treated as taxpayers for all purposes, and 

shall file a return and remit the tax imposed on the activity on 

behalf of the principal. No deduction shall be allowed for any 

commissions or fees retained by such a broker, except as provided 

in Section 14-405, relating to advertising commissions.

(Emphasis added.)

¶23 The OTCs admit that the fees they collect are service fees. 

Although the OTCs argue that these fees are separate from the price 

customers pay for the right to occupy a hotel room, each consumer must 

pay the total amount the OTC charges, including service fees, to rent the 

room. The OTC’s decision not to separately itemize service fees, but to label 

the hotel room’s net rate plus the service fees as the “Reservation” or 

“Nightly Rate” on their customer invoices, further demonstrates that the 

entire amount is the price paid for lodging. Because customers must pay 

the entire combined amount to obtain future lodging at the time they book 

with the OTC, the entire amount they pay is the sales price for the lodging 

paid to the OTC on the hotel’s behalf at the time of the sale. The Code does 

not provide a deduction for service fees retained by the OTCs. Thus, the 

entire sales price the OTC charges is the gross income for the lodging 

transaction and is taxable under § 14-444.

¶24 Our reasoning accords with decisions regarding the taxability 

of OTCs in other state and federal courts. In jurisdictions that require only 

hotel owners and operators to remit taxes on the revenues they receive, the 

OTCs’ service fees have generally not been found taxable.

2 In jurisdictions 

that apply a tax to the entire cost of purchasing lodging, the OTCs’ service 

fees have been found taxable.

3 For example, Baltimore changed its tax laws 

 

2 See, e.g., Pitt Cty. v. Hotels.com, G.P., LLC, 553 F.3d 308, 313 (4th Cir. 

2009) (tax only imposed on hotel “operators”); Louisville/Jefferson Cty. Metro 

Gov’t v. Hotels.com, L.P., 590 F.3d 381, 385 (6th Cir. 2009) (imposed tax on 

amounts charged by entities “doing business as . . . hotels”); City of 

Columbus v. Hotels.com, L.P., 693 F.3d 642, 651 (6th Cir. 2012) (amount 

charged by hotel is taxable).

3 See, e.g., Travelscape, LLC v. S.C. Dep’t of Revenue, 705 S.E.2d 28, 32–33 

(S.C. 2011) (OTCs’ hotel transactions subject to tax upon gross proceeds); 

Travelocity.com, L.P. v. Wyo. Dep’t of Revenue, 329 P.3d 131, 145, ¶ 55 (Wyo. 
PHOENIX, et al. v. ORBITZ, et al.

Decision of the Court

9

to reflect models that charge tax on the entire lodging transaction to 

successfully collect tax from the OTCs. Jaan Rannik, Note and Comment, 

Locality v. Online Travel Company: Does the Bell Finally Toll for Quill 

Corporation v. North Dakota?, 9 J. Bus. & Tech. L. 293, 297-98 (2014); see also

Mayor & City Council of Balt. v. Priceline.com Inc., 2012 WL 3043062 at *9 (D.

Md. July 24, 2012) (mem. decision).

¶25 The superior court correctly applied the law and summary 

judgment on this issue was appropriate.

II. The OTCs are not taxable entities under Phoenix City Code 

§ 14-447.

¶26 Unlike § 14-444, which specifically incorporates hotel room 

brokers as taxpayers, § 14-447 taxes “the gross income from the business 

activity of any hotel engaging or continuing within the City in the business 

of charging for lodging.” (Emphasis added.) The OTCs argue that § 14-447 

taxes income received by hotels and does not apply to OTC activities. The 

Cities argue that § 14-447 taxes all entities receiving gross business income 

from furnishing lodging to customers.

 

2014) (as vendors, OTCs’ markups are subject to sales tax); City & Cty. of 

Denver v. Expedia, Inc., 405 P.3d 1128, 1138, ¶ 35 (Colo. 2017) (the OTCs’ 

service fee is taxable as it is inseparable from the price of lodging).
PHOENIX, et al. v. ORBITZ, et al.

Decision of the Court

10

¶27 While § 14-200 does define gross income broadly,

4 § 14-447’s

plain text limits the taxable income to business activities of hotels. The Cities 

do not explain how § 14-200 overcomes § 14-447’s limitation on hotel 

income only. The Cities argue that § 14-447 institutes a tax on the entire 

consideration consumers pay for hotel rooms regardless of its later division. 

If § 14-447 were to be read as broadly as the Cities suggest, however, the tax 

could be applied to the income of any business affiliated with the hotel 

industry. We agree with the OTCs that the language of § 14-447 limits 

taxpayers to hotels renting lodging to customers. It does not extend to

brokers engaging in hotel operations, as reflected in other sections of the 

Code.

¶28 The superior court misapplied the law when it granted the 

Cities’ motion for summary judgment as to the taxation provisions of § 14-

447. Therefore, we reverse the superior court’s grant of summary judgment 

on this issue and remand for entry of judgment in favor of the OTCs.

III. The Cities did not advance a new interpretation of the Code.

¶29 In its summary judgment order, the superior court concluded

the Cities are barred from assessing any tax, penalty, or interest 

retroactively, before 2013, because the Cities did not enforce the taxes prior 

to that year. This conclusion is contrary to Code § 14-542(b)(2), which

provides:

 

4 Pursuant to Code § 14-200(a), gross income includes:

(1) The value proceeding or accruing from the sale of 

property, the providing of service, or both.

(2) The total amount of the sale, lease, license for use, or rental 

price at the time of such sale, rental, lease, or license.

(3) All receipts, cash, credits, barter, exchange, reduction of or 

forgiveness of indebtedness, and property of every kind or 

nature derived from a sale, lease, license for use, rental, or 

other taxable activity.

(4) All other receipts, whether payment is advanced prior to, 

contemporaneous with, or deferred in whole or in part 

subsequent to the activity or transaction.
PHOENIX, et al. v. ORBITZ, et al.

Decision of the Court

11

If the Tax Collector adopts a new interpretation or application of 

any provision of this chapter or determines that any provision 

applies to a new or additional category or type of business and the 

change in the interpretation or application is not due to a change 

in the law . . . the Tax Collector shall not assess any tax, 

penalty or interest retroactively based on the change in 

interpretation or application.

(Emphasis added.)

¶30 Adoption of a new interpretation requires a change from an 

old position because the “liability for transaction privilege taxes arises 

automatically when a taxpayer engages in taxable business activity in 

Arizona.” Tucson Mech. Contracting, Inc. v. Ariz. Dep’t of Revenue, 175 Ariz. 

176, 178 (App. 1992) (emphasis added). While taxing authorities may audit 

select taxpayers to ensure compliance, privilege taxes are self-assessed. Id. 

Failure to collect a privilege tax does not render an unambiguous statute 

unenforceable and does not preclude the tax authority from seeking to 

collect those revenues in the future. Miami Copper Co. Div., Tenn. Corp. v. 

State Tax Comm’n, 121 Ariz. 150, 153 (App. 1978). The OTCs bear the burden 

of proving that the Cities changed their interpretation of the tax law. See 

Code §§ 14-370(a) and 14-400(c); see also Valencia Energy Co. v. Ariz. Dep’t of 

Revenue, 191 Ariz. 565, 582, ¶ 55 (1998) (the department can be estopped 

from collecting taxes if taxpayer proves the department held inconsistent 

positions). 

¶31 Here, the record shows no evidence that the Cities held 

positions contrary to the one they now advance. Therefore, the OTCs failed 

to demonstrate they qualify for an exclusion based on a change in the Cities’ 

interpretation of the tax provisions. The OTCs also fail to demonstrate that 

their business is a new activity or category. Brokering hotel and travel 

services is not a new industry; although the OTCs provide these services 

through the internet, the nature of the services remains the same. The 

OTC’s business activities are, therefore, not “new.”

¶32 We conclude that the superior court misapplied the law;

dismissal of the Cities’ motion for summary judgment was inappropriate

as the Code allows the Cities to collect tax from previous years, when not 

barred by statutes of limitation. Because there was no change in the Cities’ 

application or interpretation of the Code and the OTCs’ business activities 

are not new, we reverse and remand for further proceedings consistent with 

this decision.
PHOENIX, et al. v. ORBITZ, et al.

Decision of the Court

12

CONCLUSION

¶33 For the foregoing reasons, we affirm the OTCs’ status as 

taxable hotel room brokers under § 14-444, but reverse the conclusion that 

the OTCs are taxable under § 14-447 and that the Cities may not assess tax, 

penalties, and interest before 2013. We remand for further proceedings 

consistent with this decision. We award the Cities their costs on appeal 

subject to compliance with Arizona Rule of Civil Appellate Procedure 21. 

We decline to award the Cities attorneys’ fees on appeal pursuant to A.R.S. 

§ 12-348.01 because this section limits recovery by a municipality to 

lawsuits involving dispute with another government entity.