HONOLULU — A Hawai‘i state judge ruled last week against the Hawai‘i Department of Taxation in favor of Expedia, Hotels.com, Orbitz, Travelocity and other Online Travel Companies (OTCs) in a tax case that could have cost the OTCs hundreds of
HONOLULU — A Hawai‘i state judge ruled last week against the Hawai‘i Department of Taxation in favor of Expedia, Hotels.com, Orbitz, Travelocity and other Online Travel Companies (OTCs) in a tax case that could have cost the OTCs hundreds of millions of dollars.
The OTCs may still be liable for nearly $200 million in back general excise taxes, according to a story on the PR Newswire website.
The tax in question is the “transient accommodations tax” which is a 9.25 percent tax levied on hotel room stays.
Judge Gary Won Bae Chang agreed with the OTCs point of view.
The same judge will rule on the general excise tax (GET) portion of the case, probably in December.
The GET is a 4 percent to 4.5 percent tax on most retail transactions in Hawai‘i.
According to court documents, the State of Hawai‘i contend the OTCs paid the tax on the net amount they paid to Hawai‘i hotels for rooms, but not on the profit, or commission, they made by selling the rooms.
The OTCs contend the state’s own tax law stipulates that tax is only due on the net amount, a situation the state tax department formally examined four times in the past decade, concluding each time that the OTCs were off the hook.
“Local officials have been conned into thinking it is good public policy to try and collect illegal taxes,” said Chairman of Travel Tech Simon Gros in a press release.
“The lawyers promoting these ill-fated cases must have gone to the King George III School of Law.”
Travel Tech, also known as The Travel and Technology Association, is an association for OTCs and includes Amadeus, Expedia, Orbitz Worldwide, Priceline, Sabre Holdings, Travelport and Vegas.com among its members.
“This means that the OTCs had correctly interpreted the state’s transient accommodations tax law,” said John Lindelow, owner of Travel Hawaii LLC, who attended the hearing. “However, I think that the OTCs could be ruled liable for the general excise tax, which clearly they should have been paying all along.”
Travel Hawaii LLC is a registered Hawai‘i travel agency which operates www.Travel-Hawaii.com, an online travel site specializing in Hawai‘i.
“State tax law and regulations are explicit that travel agencies must pay GET on the commissions they earn,” said Lindelow, “and the OTC’s have never paid a dime.”
Bruce Fisher agrees with Lindelow. Fisher owns Hawai‘i Aloha Travel LLC, a registered travel agency which operates www.Hawaii-Aloha.com online travel agency.
“We’ve been dealing with this for years,” said Fisher. “The OTCs don’t have to pay the tax, which gives them an advantage. We’re trying to compete and can’t. When I make a commission, I’m selling someone else’s retail. It has nothing to do with our economy here. Shouldn’t people in Hawai‘i be selling Hawai‘i? We’re trying to bring business here.”
Fisher’s agents always pay GET on the commissions they earn. He thinks OTCs should pay the GET or forego it altogether to level the playing field.
“Our company has always paid the 4.5 percent GET on our profits, while the OTCs have never paid it, putting the OTCs at a distinct competitive advantage against local companies such as ours who have always played by the rules,” said Lindelow.
