March 18–The Hawaii Supreme Court decided Tuesday that nine popular online travel companies will pay the state a portion of $247 million in general excise taxes assessed since 2000.
Expedia, Hotels.com, Hotwire, Orbitz, Priceline.com, Travelocity.com, Trip Network, Internetwork Publishing Corp. and Travelweb will be required to pay up to “tens of millions of dollars” in state taxes they failed to pay for selling Hawaii hotel rooms over the Internet.
“This landmark ruling is the first time the Supreme Court ruled that online commerce may be just as subject to pay general excise taxes as local brick-and-mortar businesses,” state Attorney General Doug Chin said in a news release. “It is the result of years of effort by the Attorney General’s Office to collect state taxes from national companies who profited from selling Hawaii hotel rooms.”
In 2010 the state Tax Department issued general excise and transient accommodation assessments against the online travel companies for back taxes. The online travel companies refused to pay, arguing that their revenue-generating activities did not occur in Hawaii, the AG’s office said.
The Supreme Court said the general excise tax law applies to those who do business in the state even without a physical presence in the islands. The ruling affirms the Tax Appeal Court’s judgment upholding the state’s assessments of penalties and interest against online travel companies for failing to file tax returns and pay general excise taxes from 2000 through 2011.
Hugh Jones, deputy state attorney general, said the online companies had paid the entire assessment of $247 million more than year ago to appeal the lower court’s ruling. The Tax Appeal Court will now have to recalculate the penalties owed based on the high court’s ruling.
The businesses earned $2.7 billion in revenues in the period covered by the assessment.
“They never filed tax returns or paid a penny to the state of Hawaii,” Jones said. “But they’re collecting the tax from consumers. They can try to appeal, but it will be very unlikely that the (U.S.) Supreme Court would take this case. There are many other businesses that have transactions by Hawaii consumers over the Internet. It has broader implications than just the travel industry.”
Jones said the companies will be taxed on their net income.
“These are moneys that can be devoted to important government programs and services. It goes to the general fund,” Jones added.
The state also has assessments for 2012 and 2013 that are still in the Tax Appeal Court, he said. The amount owned for those years will be determined by the court.
“It’s a privilege to do business in Hawaii,” Chin added. “Bottom line, these online travel companies derived substantial revenues from the sale of Hawaii hotel rooms, and they need to pay their fair share.”
Travelocity representatives didn’t return an after-hours call for comment.
