Hawaii’s attorney general on Wednesday said the state has recovered more than $53.1 million in general excise tax, penalties and interest from nine online travel companies, following a final judgement by the state Tax Appeal Court.
The online travel companies include Travelocity.com, Expedia, Orbitz and Priceline.com, according to Attorney General Doug Chin. The tax litigation began in 2011 after the state tax department issued GE tax and TAT assessments against the online travel companies for back taxes starting from 2000 in 2010. The online travel companies refused to pay, arguing their revenue generating activities did not occur in the state of Hawaii.
“Online travel companies derive substantial profits from the sale of hotel rooms, rental cars and other services in Hawaii. The importance of the Hawaii 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 Hawaii are subject to Hawaii taxation, despite being domiciled in other states,” said Chin.
The Tax Appeal Court previously ruled the companies owed general excise tax, but not the state’s transient accommodations tax that is assessed on operators of transient accommodations, like hotels. The state and the companies appealed to the Hawaii Supreme Court from these rulings.
On March 17, the Supreme Court upheld the Tax Appeal Court’s ruling that the companies are subject to Hawaii’s general excise tax, but concluded that they are taxable only on their net receipts from the sale of hotel rooms in Hawaii, not gross receipts. The court ruled that the companies receive the benefit of an income splitting provision that applies to travel agents.
The court rejected the companies’ argument that they were not doing business in Hawaii, staing in its opinion, that “the (companies) are not passive sellers of services to Hawaii consumers. The (companies) actively solicit customers for Hawaii 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 then remanded the case to the Tax Appeal Court to redetermine the amount of general excise taxes, penalties and interest the companies owe to the state. On Sept. 22, the 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 other state tax obligations for other business activities in Hawaii between 2000 and 2013 continues.
In 2010, the state tax department issued GE tax and TAT assessments against the online travel companies for back taxes starting from 2000. The online travel companies refused to pay, arguing their revenue generating activities did not occur in the state of Hawaii. In today’s ruling, the Supreme Court upheld the very broad reach of Hawaii’s general excise tax and stated that general excise tax applies to “virtually any economic activity imaginable.”