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Hawaii State Judge Rules Online Firms Freed of Hotel Taxes

Order Will Eliminate Nearly $700 million to the State for Tax Years 1999 to 2011

By Nelson Daranciang, The Honolulu Star-AdvertiserMcClatchy-Tribune Regional News

Oct. 23, 2012--Travel booking companies that sell Hawaii hotel rooms online do not have to pay the state hotel room tax, a state judge ruled Monday.

That means the state will not get the nearly $700 million in transient accommodations taxes it assessed Expedia,, Hotwire, Orbitz, Priceline, Travelocity and four other online travel companies for the tax years 1999 through 2011.

"We appreciate the judge's thoughtful attention and glad he reached the correct result," said Honolulu lawyer Paul Alston, who represented the companies in the appeal of their state tax assessments.

A spokeswoman for the state Department of Taxation said the department will not comment on the judge's ruling until it sees the order. It may be more than a month before there is an order.

Circuit Judge Gary Won Bae Chang ordered Alston to prepare the order but told him there is no need to rush.

Even if the state intends to appeal his ruling, it cannot do so until he decides the other half of the online travel companies' tax appeals -- for the millions of dollars in general excise tax the state says the companies owe for the same period.

Chang will hear arguments for and against the GET appeals in December.

State law requires every operator of a hotel or guest rental to pay the TAT based on the gross rental proceeds. The current rate is 9.25 percent.

The state argued that the companies are required to pay the tax because they provide hotel rooms when they sell reservations. The price they charge includes a markup and service fees. The state said the companies owe the tax based on the entire amount the traveler paid them for the hotel room even though the hotels pay the tax on the portion they receive from the companies.

The companies say they do not provide hotel rooms, but merely facilitate the transactions, like a travel agent.

Chang said for the purposes of the tax, the companies are travel agents. And he said he believes that when the state Legislature enacted the TAT law, it intended that "the tax will only be applicable to the proceeds that are distributed to the operator if a travel agent or similar-type entity is involved in generating the revenues," and that "the TAT in this case only applies to the net rate that is distributed to the hotels."

There is no definition of "travel agent" in the TAT law.


(c)2012 The Honolulu Star-Advertiser

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