Online Travel Companies Ordered to Pay the State $70 Million in Penalties on Unpaid General Excise Taxes

News Release from Hawaii Attorney General March 19, 2013

HONOLULU—Tax Appeal Court Judge Gary W.B. Chang yesterday granted the State of Hawaii’s motion for summary judgment, finding that Online Travel Companies (“OTCs”) selling Hawaii hotel rooms over the Internet and otherwise owe the State tax penalties provided by law for failure to file Hawaii General Excise Tax (“GET”) returns and to pay the taxes over a ten year period. The penalties, including interest owed by the OTCs on the penalties, now total approximately $70 million.

On January 11, 2013, Judge Chang granted summary judgment in favor of the State of Hawaii against OTCs including Expedia, Hotels.com, Hotwire, Orbitz, Travelocity and Priceline, ruling that the GET applies to the sales of Hawaii hotel rooms by OTCs. The amount of unpaid taxes owed is approximately $158 million, which includes interest. These unpaid taxes cover the period from 2000 through 2011. In addition to the unpaid taxes, the court’s ruling could result in future GET collections of approximately $20 million annually.

On March 7, 2013, the state appealed from a ruling that the OTCs did not have to pay the state’s transient accommodations tax (“TAT”) which is a tax on the gross receipts of any “operator” of transient accommodations. The state believes that the OTCs are “operators” because they are involved in the actual furnishing of transient accommodations, and because the definition of “operator” includes persons involved in the actual furnishing of transient accommodations. Approximately $400 million is involved in unpaid TAT. Should the state prevail on the TAT appeal, the state would likely collect approximately $40 million in additional TAT going forward.

Attorney General David M. Louie announced that the state is pleased that the court determined that the OTCs did not have reasonable cause not to file general excise tax returns or to pay the taxes owed, stating that “the OTCs did not produce any advice from legal counsel or accounting professionals advising that their position was reasonable and that they did not have to pay the state’s general excise taxes.” Louie  explained that “the burden is on taxpayers to demonstrate that they had reasonable cause not to file or pay the taxes, and we believe the court correctly found that the OTCs failed to prove their case.”

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Travel Tech: Hawaii Ruling on Online Bookings is Ripe for Appeal

News Release from Travel Technology Association Washington, D.C., January 14, 2013

The association representing the online travel industry issued the following statement in regards to Friday’s Hawaii Tax Appeal Court decision:

“This ruling will significantly increase costs for all tour operators, travel agents, OTCs, and other travel intermediaries that facilitate travel to Hawaii.

"Because demand for travel to Hawaii is acutely sensitive to price changes, this change in tax treatment will harm consumers and significantly reduce demand for Hawaii vacations.

"Travel Tech members intend to challenge this ruling as well as work cooperatively with tourism leaders and lawmakers to minimize the ruling’s damage to the Hawaii tourism economy.”

The Travel Technology Association, or Travel Tech, is the association for online travel companies (OTCs) and global distribution systems (GDSs), and is dedicated to connecting consumers and travel providers, eliminating barriers to travel and protecting consumers. Travel Tech’s members include: Amadeus, Expedia, Orbitz Worldwide, Priceline, Travelocity, Travelport and Vegas.com

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AP: Travel sites appealing Hawaii's $70M fine

March 20, 2013: ...Robin Reck from the Travel Technology Association, which represents the online travel companies, says they are appealing the decision.

She says the court is single-handedly undermining the Hawaii tourism industry by driving up the cost of travel services and telling visitors to go to Mexico or the Caribbean instead....