The Hawaii AG filed papers with the Hawaii Tax Appeal Court claiming that online travel companies (OTCs) , i.e. Expedia, Travelocity, Orbitz, etc., owe $500 million in unremitted transient accommodation taxes and general excise taxes. Perhaps the OTCs should have settled the case last year. The State of Hawaii only wanted $170 million in March of 2011.
However, Hawaii’s transient accommodations tax case seems weak since the tax is imposed only on the gross proceeds from “furnishing” transient accommodations. I doubt the Hawaii Tax Appeal Court will equate online selling of hotel rooms to “furnishing” them. And even so, only a hotel “operator” is obligated to remit the tax to the state. The OTCs could be in trouble, however, with the State’s general excise tax claim because the general excise tax is a broad based gross receipts tax on virtually all business activity within Hawaii (even some outside the state).
The Hawaii lawsuit comes on the heels of similar proceedings in other jurisdictions where governments have sued OTCs, sometimes using contingency fee counsel, for unpaid hotel occupancy taxes. States and municipalities claim that OTCs should pay their fair share of hotel occupancy taxes on the full price paid by the customer on the hotel room. The OTCs claim that they should only remit the tax on the discounted wholesale rate they pay to hotels. Click here for a listing of recent hotel occupancy tax news from the Interactive Travel Services Association, the OTCs’ trade group. For the most part, OTCs have been winning their court battles because most hotel occupancy tax laws tax only the “operator” of the hotel not the online seller.
In related news, the two individuals have sued major hotel chains (i.e. Hilton, Sheraton, Marriott) for colluding with OTCs to fix the price of hotel bookings.
Update, 9/10/2012, Sixth Circuit Court of Appeals rules that OTCs not subject to hotel occupancy taxes in Ohio because, among other reasons, OTCs do not operate hotels, are not hotels, and are not operators of hotels.