SUPREME COURT DECISION WELCOME NEWS FOR STATE’S TOURISM INDUSTRY

Online Travel Innovators Help Support Hawaii’s Number One Industry and its 168,000 Jobs

News Release from TTA, March 17, 2015

WASHINGTON, D.C. – The Travel Technology Association (Travel Tech), the association for leaders in the online travel industry, released the following statement after Hawaii’s Supreme Court ruled decisively in favor of online travel companies (OTCs) today. The court affirmed an earlier Tax Appeal Court decision that OTCs are not hotels and thus the compensation they retain for their services is not subject to the Transient Accommodation Tax (TAT). The state’s highest court also ordered the state to refund to the OTCs the vast majority of the General Excise Tax (GET) and penalties the state had assessed.

“We applaud today’s confirmation and well-reasoned decision by the Hawaii Supreme Court that Hawaii hotel taxes do not apply to OTCs and the amount they charge for their online services,” said Travel Tech President Steve Shur. “As the state Supreme Court, and dozens of U.S. courts before it have recognized, online travel companies are not hotels, and therefore should not be paying hotel taxes.”

OTCs use innovative platforms and technologies to help drive travelers to the state, facilitating the booking of hundreds of thousands of room nights at Hawaii hotels each year. Hawaiian travel suppliers and tourism marketing organizations often partner with OTCs to drive tourism to the state, and Travel Tech members also spend millions each year marketing Hawaii destinations to tourists from around the world.

“When a consumer is planning that family vacation to Honolulu, or that anniversary getaway to Kauai, it’s OTCs they turn to in order to search, compare, and book the best travel options. We look forward to working with local officials and stakeholders to find innovative ways that our members can continue to help draw more visitors to Hawaii communities,” Shur concluded.

ABOUT TRAVEL TECH

The Travel Technology Association is the trade association for the travel technology industry, and is dedicated to promoting public policy that helps connects consumers and travel providers, eliminates barriers to travel, and protects the traveling public.

Travel Tech members include: Orbitz, Expedia, Priceline, Sabre, Amadeus, Travelport, Airbnb, HomeAway, TripAdvisor, CheapOAir, and Vegas.com.

Learn more about the Travel Technology Association by visiting us at TravelTech.org and following us on Twitter, @TravelTech.

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The Economist: A mixed verdict for Hawaii

Flashback 2012: Judge rules online firms don't owe $700M in hotel room taxes

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HAWAII SUPREME COURT RULES ONLINE TRAVEL COMPANIES MUST PAY MILLIONS IN BACK TAXES FOR HAWAII HOTEL ROOM SALES

News Release from Office of the Attorney General March 17, 2015

HONOLULU - The Hawaii Supreme Court ruled today that 9 online travel companies, including Expedia, Orbitz, Priceline and Travelocity, owe up to tens of millions of dollars in back taxes to the State of Hawaii for selling Hawaii hotel rooms over the Internet.

“This landmark ruling is the first time the Supreme Court ruled that online commerce may be just as subject to pay general excise (GE) taxes as local brick-and- mortar businesses,” announced Attorney General Doug Chin. “It is the result of years of effort by the Attorney General’s office to collect state taxes from national companies who profited from selling Hawaii hotel rooms.”

In 2010, the state tax department issued GE tax and TAT assessments against the online travel companies for back taxes starting from 2000. The online travel companies refused to pay, arguing that their revenue generating activities did not occur in the State of Hawaii. In today’s ruling, the Supreme Court upheld the very broad reach of Hawaii’s general excise tax and stated that general excise tax applies to “virtually any economic activity imaginable.”

The Court pointed out that the general excise tax law applies to persons who do business in the State even when they don’t have a physical presence in Hawaii. The online travel companies “were not passive sellers of services to Hawaii consumers.” The Court reasoned:

[I]t is clear the occupancy rights that [these companies] are selling to transients are wholly consumable and only consumable in Hawaii. Even though an [online travel company’s] agreement with a transient may take place outside of Hawaii, the agreement is effected with the intent that performance would occur entirely in Hawaii.

Today’s ruling affirms the Tax Appeal Court’s judgment upholding the State’s assessments of penalties and interest against online travel companies for failing to file tax returns and failing to pay general excise taxes during the period 2000 through 2011.  “The amount of taxes, penalties and interest owed by these online travel companies will be substantial, up to tens of millions of dollars,” said Deputy Attorney General Hugh Jones, lead state attorney in the litigation since 2010.

“On top of those back taxes, we believe online travel companies must pay GE taxes to the State of Hawaii for the past years up to the present and going forward, based on this ruling,” said Chin. “It’s a privilege to do business in Hawaii. Bottom line, these online travel companies derived substantial revenues from the sale of Hawaii hotel rooms and they need to pay their fair share.”

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CN: Online Travel Sites Owe Hawaii Millions in Taxes

PDF: Court Decision