Following Appeal, Hawaii Supreme Court Rules Online Travel Companies Owe $53M to State

Oct. 01–The state Attorney General's office said Wednesday that online travel companies will have to pay $53.1 million in general excise taxes, penalties and interest stemming from litigation that began in 2011.

"Online travel companies derive substantial profits from the sale of hotel rooms, rental cars and other services in Hawaii," Attorney General Doug Chin said. "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."

The Tax Appeal Court previously ruled that travel companies, including Travelocity.com LLP, Expedia Inc., Orbitz LLC and Priceline.com LLP, owed general excise taxes.

The companies appealed that ruling to the Hawaii Supreme Court. In March, the state's top 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 their gross receipts," the Department of the Attorney General said in a news release.

The court rejected the companies' argument that they were not doing business in Hawaii. The court stated in its opinion: "The (companies) are not passive sellers of services to Hawaii consumers. The (companies) actively solicit customers for Hawaii hotel rooms."

On Sept. 22, the Tax Appeal Court determined that, based on the high court's ruling, the online travel companies owed the state $53.1 million.

The money is currently in a trust fund that was set up to hold the payments from the online travel companies while waiting for a decision on their appeal.

"Now that the final judgments have been filed in the Tax Appeal Court, after the payment of litigation-related expenses, the remainder of the monies in this trust fund will be transferred to the general fund of the state of Hawaii as a government realization," said Joshua Wisch, Chin's special assistant.

Further litigation against online travel companies for other state tax obligations for other business activities in Hawaii between 2000 and 2013 is pending.