No doubt this was the largest and most high profile tax case to come out of Hawaii in many years. The OTCs are potentially on the hook for taxes of $500 million or more!
The Hawaii tax appeal court ruled that online travel companies are not liable for transient accommodation taxes on their online hotel bookings. The court noted that online travel companies are similar in nature to travel agents that do not pay the transient accommodation tax on their sales. The result is that the court made a determination that the transient accommodations tax does NOT pyramid (i.e. multiple layers of tax on the same transaction) in the same way the GET does.
The parties will have another hearing in December 2012 to determine whether OTCs are liable for Hawaii GET on their Hawaii hotel bookings. I’d bet that they are liable at least on their profit margin and fees generated. This would be a GET scheme similar to how a travel agent is taxed on their commissions from the hotels and any fees charged to the customer. No doubt this could produce a tax bill in the tens of millions of dollars or more.
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