Online Travel Companies Pay State Millions

The State of Hawai‘i has recovered $53.1 million in general excise taxes, penalties and interest from online travel companies, including Travelocity.Com LLP, Expedia Inc., Orbitz LLC and Priceline.Com LLP from tax litigation that began in 2011.

“Online travel companies derive substantial profits from the sale of hotel rooms, rental cars and other services in Hawai‘i,” said state Attorney General Doug Chin. “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.”

The Tax Appeal Court previously ruled that the companies owed general excise taxes but not the state’s transient accommodations tax that is assessed on operators of hotels, for example. The state and the companies appealed to the Hawai‘i Supreme Court from these rulings.

On March 17, the Hawai‘i Supreme Court upheld the Tax Appeal Court’s ruling that the companies are subject to Hawai‘i’s general excise tax, but concluded that they are taxable only on their net receipts from the sale of hotel rooms in Hawai‘i, not their gross receipts. The court ruled that the companies receive the benefit of an income splitting provision that applies to travel agents in chapter 237, Hawai‘i Revised Statutes.

The court rejected the companies’ argument that they were not doing business in Hawai‘i.

“The [companies] are not passive sellers of services to Hawai‘i consumers,” the court stated in its opinion. “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 excise taxes, penalties and interest the companies owe to the state.

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

Litigation against the companies for their other state tax obligations for their other business activities in Hawai‘i from 2000 through 2013 is continuing.