A federal appeals court has upheld the dismissal of a lawsuit in which Louisville and Lexington officials tried to collect taxes from hundreds of online hotel brokers such as Hotels.com.

The U.S. 6th Circuit Court of Appeals ruled on Tuesday that Kentucky's law governing hotel taxes doesn't cover online travel companies. U.S. District Judge Thomas Russell dismissed the suit in 2008.

The city of Louisville three years ago sued hundreds of Web sites, including Orbitz and Travelocity, that rent discount hotel rooms, accusing the online travel companies of not paying taxes on the rooms rented.

Lexington joined the lawsuit, asking Russell to award an unspecified amount from the online travel companies to the two municipalities and to the 24 cities and 25 Kentucky counties that have hotel taxes.

For more than 15.4 million people, the Making Work Pay tax credit enacted as part of the $787-billion economic stimulus package could turn out to be a Making You Pay Back tax credit.

That's the finding of a government watchdog report out today about the credit, which provides as much as $400 for individuals and as much as $800 for joint filers. It is the signature tax cut that President Obama promised in his campaign and was delivered with much fanfare in February.

The problem: In order to maximize the credit's stimulative effect on the economy, withholding changes for taxpayers kicked in within days of Obama signing the legislation and taxpayers started seeing the changes in their paychecks in April. In essence, the credit was "advanced to taxpayers through their wages by a decrease in federal income tax withholding" for the 2009 and 2010 tax years, according to the report by the Treasury Department's Inspector General for Tax Administration.

http://latimesblogs.latimes.com/money_co/2009/11/millions-may-have-to-repay-part-of-obama-tax-credit.html

Michigan's bipartisan State Board of Education urged Gov. Jennifer Granholm and lawmakers to find money to reduce cuts in public education and buy time for a long-term funding solution.

The 8-0 vote on Monday came after a series of blows delivered to public schools last week.

Democratic governor signed an education budget that contains a cut of $165 per student. But she also vetoed $51 million in extra funds for 39 wealthier districts and ordered another $127 per-pupil cut for all districts because of falling tax revenue.

The reductions will take effect unless more money is raised within a month.

The board heard from superintendents, former legislators and others in the public. Yet it was the testimony of three economic experts that prompted optimism that money for schools could be found if the political will existed.

The experts, who have different political backgrounds, agreed Michigan should lower its 6 percent sales tax but tax services that are exempt now — such as entertainment and landscaping, for example. Business-to-business services such as accounting and engineering would not be taxed.

The Supreme Court won't stop Massachusetts from taxing out-of-state corporations that work in that state but don't have in-state buildings or employees.

The court refused on Monday to hear an appeal from Capital One Bank and Geoffrey, Inc., a subsidiary of Toys R Us that licenses the company's giraffe logo and other trademarks.

Massachusetts tax officials say both companies make money in-state, and therefore should pay state taxes. The companies say that the Commerce Clause of the Constitution prohibits state officials from taxing out-of-state companies that do not have a physical presence in that state.

States normally are not allowed to tax out-of-state corporations who do not have a physical presence in those states. Massachusetts's top court ruled, however, that it could tax out-of-state corporations if they have a "substantial nexus" in a state.

CapitalOne banks are based out of Virginia, but offers credit cards that are used by people in Massachusetts and uses collection agencies in that state to go after delinquent accounts. Geoffrey, Inc., licenses the use of Toys R Us trademarks for its stores in Massachusetts.

The cases are Geoffrey, Inc., v. Commissioner of Revenue, 08-1207 and CapitalOne Bank v. Commissioner of Revenue, 08-1169.

The Georgia Supreme Court concluded Monday that the online travel company Expedia Inc. has shortchanged a west Georgia city on hotel and occupancy taxes.

The court's 4-3 ruling — the first such decision by Georgia's top appellate court — found that Expedia must collect hotel occupancy taxes from its customers and pay them to the city of Columbus.

An attorney representing Columbus said the ruling doesn't say whether Expedia owes back taxes, and said that issue may be decided by a lower court.

While the Georgia court's ruling doesn't apply to cases in other states, city attorneys say it could bring fresh momentum to dozens of other lawsuits around the country brought by frustrated officials who say the online travel scheme is depriving them of tax dollars.

"Decisions like this are persuasive if nothing else," said Wade Tomlinson, who represented the city of Columbus in the lawsuit. "Other courts will look at it, consider it and apply it."

Many similar complaints have been dismissed by federal or state judges, but attorneys say several are still pending, including lawsuits filed by officials or customers in Atlanta, Baltimore, San Antonio and a federal class action lawsuit filed on behalf of Georgia cities. Similar complaints have also been filed in New York, Chicago, Philadelphia, San Francisco and Anaheim, Calif.

The lawsuits hinge on the complicated pricing schemes used by Expedia, Orbitz, Travelocity and other online travel sites.

When consumers make reservations at the sites, they pay more for a room than the online outfits pay the hotels for the room, allowing the online companies to pocket the difference.

President Barack Obama plans changes to tax policy certain to be unpopular with corporations with international divisions and individuals who use tax havens.

Obama's two-part plan, which he will announce later Monday at the White House, also embraces 800 additional federal agents to enforce the tax code.

The president's proposal would eliminate some tax deductions for companies that earn profits in countries with low tax rates, as well as consider U.S. citizens who use tax havens in the Bahamas or Cayman Islands guilty of violating U.S. tax laws. If Obama wins congressional approval for the changes — and he faces a challenge on Capitol Hill — the new enforcement initiative could yield $210 billion in tax revenue over the next decade.

Treasury Secretary Timothy Geithner was to join Obama for the comments. The White House released details of the plan earlier Monday.

White House officials acknowledged the political challenges facing the plan. The administration won't seek a complete repeal of overseas tax benefits and, although the rule changes are narrower than some anticipated, business leaders still oppose them as a tax hike. Obama aides countered that the plan is a step toward the massive overhaul of international financial regulations that the president has promised.

In exchange, Obama said he was willing to make permanent a research tax credit that was to expire at the end of the year and is popular with businesses. Officials estimate that making the tax credits permanent would cost taxpayers $74.5 billion over the next decade.

An appeals court affirmed Timothy McVeigh's lawyer cannot claim a charitable tax deduction for donating prosecution materials from the Oklahoma City bombing case.

The three-judge panel of the 10th Circuit Court of Appeals on Friday upheld a tax court ruling that threw out the deduction claimed by Stephen Jones for material he collected as lead defense counsel in McVeigh's trial for the 1995 bombing that killed 168 people.

Jones told The Associated Press on Monday that the courts agreed the value of the gift is not deductible, but the appellate court rejected what Jones characterized as "ill-tempered language" in the tax court's opinion of his case.

Jones said the Internal Revenue Service treated him and his wife, Sherrel, with "a cavalier, condescending, unprofessional attitude and behavior from beginning to end."

He said he asked that the agency's Oklahoma City office be disqualified from the case because some IRS workers there had experienced losses in the bombing, which injured hundreds of people and damaged areas of downtown.

A spokesman for the IRS in Dallas, Clay Sanford, declined comment on the case because of federal disclosure regulations that prohibit public discussion of individual tax matters.

An appraiser hired by Jones valued the materials at $294,877, and Jones and his wife claimed a tax deduction for that amount. He said he received the deduction for four years before the IRS rejected it and sent Jones a notice of tax deficiency for $14,785.

In upholding the tax court ruling, the Denver-based appellate court said the size of the deduction Jones could claim was limited to the amount he had paid or invested, which was none.

Jones gave the prosecution and defense materials to the University of Texas, which he attended as an undergraduate. The archive includes transcripts, FBI reports, correspondence, videotapes and other materials.