By eTN Editor
Created 7 Feb 2015 – 2:45am
eTN Staff Writer
HAWAII (eTN) – Back in 2011, Hawaii officials, with the support of the state’s Attorney General David Louie, filed a court suit asking a number of online travel companies, including Expedia, Orbitz, Travelocity, Priceline, Hotwire, and Hotels.com, to pay for hotel room taxes. The suit was seeking a total of $170 million in unpaid general excise state tax.
What happens is the online companies purchase hotel rooms at wholesale prices, then mark them up and sell them on their web sites. From 1999 to 2010, these companies collected the Hawaii state GE tax on the marked up rates, but only paid taxes to the state at the wholesale rates.
A spokesman for the Interactive Travel Services Association, Andrew Weinstein, said that Hawaii law has always applied only to the amount received by the hotel, not to any amount charged by intermediaries, such as online companies and travel agents, in the same way that lodging taxes do not apply to travel agents or online travel companies.
The online companies filed an appeal with the state’s Tax Appeal Court.
In January 2013, Judge Gary Won Bae Chang ruled that these same online travel companies had to pay US$158 million in back GE taxes, stating the GE tax is a privilege tax imposed on businesses for the privilege of doing business in the state. The online companies argued that their business is done outside of the state of Hawaii. In addition to the US$158 million, it was ruled in March 2013 that the companies would have to pay penalties for interest on the back taxes. An attorney for the companies said it was certain an appeal would be filed. It is estimated the penalty would total at least US$70 million.
Now, here we are in present day – February 2015 –and it is estimated Expedia could owe more than US$800 million by now to Hawaii and other states for online hotel bookings made over the past ten years or so. According to a Securities and Exchange Commission filing, Expedia has less than 1/10 of that amount.
Expedia has been the target of 88 lawsuits involving the room-tax issue, of which 23 cases were dismissed, and 35 remain active. The remaining 30 cases have been settled, put on hold, referred to administrative proceedings, or have been otherwise resolved. Expedia accounts for over half of all the online hotel bookings made in the US in 2014.
Expedia and other online travel companies are arguing that the GE tax applies to entities that own or control hotels, not to websites or travel agents that help the hotels sell their rooms.
As for Hawaii’s State Transient Accommodations Tax – a separate tax from the GE tax – it was ruled in 2012 by Hawaii Circuit Court Judge Gary Won Bae Chang that travel booking companies do not have to pay Hawaii’s state transient accommodations tax. Judge Chang said when the Hawaii State Legislature enacted the transient accommodations tax law, it did not intend for it to apply to travel agents and online travel companies.
Source URL: http://www.eturbonews.com/55336/online-travel-companies-vs-hawaii-state-tax-battle-rages