(CN) - Expedia, Travelocity and other online travel companies owe Hawaii millions of dollars in back taxes, the state's highest court ruled on March 17.
Hawaii's Director of Taxation retroactively assessed 10 travel companies for General Excise Taxes, Travel Accommodations Taxes and penalties from 1999 to 2011.
The travel companies, which also included Hotels.com, Hotwire, Site59, Orbitz, Trip Network, Priceline, Travelweb and Internetwork Publishing Co., appealed the assessments on the companies' sales of the right to occupy hotel rooms.
The Tax Appeal Court ruled in the state's favor on the excise tax issue but in favor of the travel companies in regard to the accommodations tax assessments.
Both sides appealed to the Hawaii Supreme Court, and its five-justice panel ruled that the travel companies owe the excise tax assessments, but not the accommodations assessments.
In his opinion, Justice Richard W. Pollack noted that customers deal exclusively with the travel companies until they arrive at the hotel.
"The transient pre-pays the online travel company in full when the right to occupy a hotel room for a certain period of time is reserved," he wrote. "The transient owes nothing to the hotel at check-in."
The online companies argued that they should not be taxed because their activities do not occur in the state of Hawaii and that their services are not "used or consumed" in the state.
The tax director countered that the online companies are subject to the taxes because they sell Hawaii hotel rooms directly to consumers. Pollack agreed.
"It is clear that the online travel companies constructively benefit through the transients' use and benefit from state services - including the use of roads and access to police, fire and lifeguard protection services," he wrote.
Pollack also stated that the online travel companies are subject to penalties because they did not "demonstrate their honest belief that they were not responsible for filing GET returns."
He remanded the case to the lower court for recalculation of the excise tax assessments because the failure-to-pay penalty was not assessed using the statute's apportioning provision.
The travel companies argued that they were not subject to the accommodations tax because they are not hotel operators. The state contended that under Hawaii law, a hotel room can have more than one operator, including "any person involved in the actual furnishing of transient accommodations."
On this issue, Pollack agreed with the travel companies.
"The definition of operator in (the law) does not contemplate or allow for multiple operators when a transient accommodation is furnished," he wrote. "Here, the hotels in the assessed transactions are acknowledged by all parties to be an operator within the meaning of the use of that term as provided by (the law); thus, for purposes of the TAT assessments, only the hotels are operators in the assessed transactions."
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