$53.1M in General Excise Taxes, Fees Recovered from Online Travel Companies

Over $53 million in general excise taxes, penalties, and interest have been recovered by the State of Hawai’i from online travel companies in an earlier ruling by the Hawai’i State Supreme Court.

“Online travel companies derive substantial profits from the sale of hotel rooms, rental cars and other services in Hawai’i. The importance of the Hawai’i Supreme Court ruling is the precedent it establishes. People or companies who provide goods and services through the Internet that are used or consumed in Hawai’i are subject to Hawai’i taxation, despite being domiciled in other states,” said Attorney General Doug Chin.

Among the companies included in the litigation were Travelocity.com, LLP; Expedia, Inc.; Orbitz, LLC; and Priceline.com, LLP.

Originally, the companies only owed general exercise taxes, based on a Tax Appeal Court ruling, excluding the State’s transient accommodations tax that is assessed on operators of transient accommodations.

An appeal was made to the Hawai’i Supreme Court by the state and the companies, and on March 17, the court upheld the Tax Appeal Court’s ruling. It was concluded that only net receipts from the sale of hotel rooms in Hawai’i were taxable, not the gross receipts.

The Court ruled that companies receive the benefit of an income splitting provision that applies to travel agents in chapter 237, Hawai’i Revised Statutes.

Companies said that they were not doing business in Hawai’i and the Court rejected the argument.

The Court said: “The [companies] are not passive sellers of services to Hawai’i consumers. The [companies] actively solicit customers for Hawai’i hotel rooms and actively solicit hotels to contractually provide the right to sell on their website the right of occupancy of hotel rooms.”

The Court remanded the case to the Tax Appeal Court to re-determine the amount of general exercise taxes, penalties and interest the companies owed the state.

On Sept. 22, the Tax Appeal Court entered final stipulated judgements setting forth the amounts owed by the companies and the amounts that the State needed to refund from the State’s litigated claims fund.

Other State tax obligation litigation for other business activities in Hawai’i from 2000 through 2013 continues.