Online Travel Companies Ordered to Pay State Millions

Photo courtesy of Ka’anapali Beach Club.

By Sonia

Yesterday online travel companies were ordered to pay approximately $228 million in taxes and tax penalties by the Tax Appeal Court in Honolulu, according to an announcement by the Hawaii State Attorney General’s office today.

Tax Appeal Court Judge Gary W.B. Chang yesterday granted the State of Hawaii’s motion for summary judgment, finding that these companies 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 10 year period.

The penalties, including interest owed, now total approximately $70 million.

Photo courtesy of Hyatt Regency.

On Jan. 11, Judge Chang granted summary judgment in favor of the State of Hawaii against the companies including Expedia, Hotels.com, Hotwire, Orbitz, Travelocity and Priceline, ruling that the GET applies to the sales of Hawaii hotel rooms.

According to the announcement, 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, the state reportedly appealed from a ruling that the companies 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 companies 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.

David Louie, Hawaii Attorney General. Courtesy photo.

Attorney General David M. Louie said in the announcement that the state is pleased that the court determined that the companies did not have reasonable cause not to file general excise tax returns or to pay the taxes owed, stating that “the [companies] 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 [companies] failed to prove their case.”