Booking.com fights to revive challenge to Hawaii tax rule

Hawaii laws levy a general excise tax on accommodation bookings but the state insists Booking.com can't preemptively challenge the law before actually paying the tax.

by Jeremy Yurow, Courthouse News, December 16, 2025

HONOLULU (CN) — Booking.com is challenging Hawaii’s authority to tax online travel bookings, but the Dutch-based company first faced a threshold question before the Hawaii Supreme Court on Tuesday: Can it even bring the case to court?

A 2018 administrative rule, known as the “Commissioned Agent Rule,” subjects online travel companies to Hawaii’s 4% general excise tax on accommodation bookings. But before any taxes were assessed, Booking.com filed a lawsuit arguing the rule violates the federal Internet Tax Freedom Act and the U.S. Constitution’s commerce and supremacy clauses.

Both a lower state court and the Intermediate Court of Appeals dismissed Booking.com’s lawsuit, ruling that Hawaii law prohibits declaratory relief in any controversy with respect to taxes. The state says this ban means companies cannot challenge a tax rule before it is enforced, they must first pay the tax and then sue to recover it.

But Booking.com’s attorney, Nathaniel Higa of Chun Kerr, argued that a more specific statute, Hawaii Revised Statutes § 91-7, governing challenges to administrative rules should prevail over the broader ban on declaratory judgments in tax cases.

“We’re not going to look at this in the entire tax system and say that any potential outcome down the road that might affect assessment and collection means that this is a controversy with respect to taxes,” Higa said. “We’re going to look at it in terms of what is being asked for here.”

Higa also raised a potential jurisdictional complication that wasn’t briefed by either party: a 2007 Hawaii Supreme Court case, Hawaii Home Infusion Associates v. Befitel, which held that the residency requirements in the statute are jurisdictional, not merely about venue. Since Booking.com has no principal place of business in Hawaii, that case could bar the lawsuit entirely.

Deputy Solicitor General Lauren Chun, representing the state Department of Taxation, countered that letting companies challenge tax rules before they are enforced would undermine the state’s tax appeal process and disrupt how Hawaii collects revenue.

“The use of a declaratory judgment as a remedy is a matter of judicial discretion,” Chun said. “They were able to challenge the legality of our tax regulation in tax appeal court and obtain an order from the tax appeal court saying that our rule is invalid.”

The justices pressed both sides on the practical implications of their positions.

“Should it matter whether a tax assessment is pending when a 91-7 action is filed?” Acting Chief Justice Sabrina McKenna asked Higa, who responded that it should not.

Justice Todd Eddins posed a hypothetical to test the limits of the state’s position, saying “Let’s imagine that there’s a tax rule that imposes a tax on only people of a certain religion, or imposes a tax on people who don’t attend church. The government doesn’t assess or try to enforce that tax. Is there no remedy to challenge that unconstitutional law?”

Chun said that taxpayers could choose to pay the disputed tax and later request a refund, which would allow them to challenge the tax in court. However, she noted that if the state granted the refund, the case might never go to court, and the tax rule would remain in effect.

Thomas Yamachika, appearing on behalf of the Tax Foundation of Hawaii, urged the court to reconcile the conflicting laws. He said that challenges under 91-7 should generally be allowed unless they directly affect a specific tax assessment or collection.

“From our point of view, there are comparatively few cases that get audited, and fewer still go through the tax appeal process,” Yamachika said. “It’s really needed in our system of checks and balances to make sure that one branch of government doesn’t go off the rails.”

A tax appeal court has already ruled that the Commissioned Agent Rule is invalid in connection with a $19 million assessment against Booking.com for the years 2010-2020, though that judgment is not yet final and settlement discussions are ongoing. The Department of Taxation has indicated it may pursue the assessment under alternative theories even if the specific rule is invalidated.

Hawaii’s tourism-dependent economy generates substantial revenue from accommodation taxes, and the outcome could affect how the state taxes all online travel platforms. A ruling in Booking.com’s favor on the jurisdictional question could also open the door for other pre-enforcement challenges to tax rules.

The justices gave no indication when they would rule.

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BT: Booking.com Seems to Persuade Hawaii Justices to Revive Tax Case