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Online travel companies ordered to pay state $70 million

Published On: Mar 19 2013 02:33:27 PM HST
Updated On: Mar 19 2013 03:12:49 PM HST
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HONOLULU -

Tax Appeal Court Judge Gary W.B. Chang granted the State of Hawaii’s motion Monday for summary judgment, finding that online travel 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 returns and to pay the taxes over a 10-year period.

The penalties, including interest owed by the travel companies on the penalties, now total approximately $70 million.

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

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 appealed from a ruling that the online travel companies did not have to pay the state’s transient accommodations tax, which is a tax on the gross receipts of any “operator” of transient accommodations.

The state believes that the online travel 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 transient accommodations tax.   Should the state prevail on the TAT appeal, the state would likely collect approximately $40 million in additional TAT going forward.

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

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