Hawaii: Online Travel Companies to Pay $246 Million in Back Taxes
- Aug 22, 2013 | Gail Cole
In the first decade of this century, travelers seeking paradise could book a room in Hawaii through an online travel company tax-free. Online travel companies (OTCs) did not collect either the state's transient accommodation tax (TAT) or the general excise tax (GET), which is similar to a sales tax. Because of that, nine online travel companies were taken to court by the state of Hawaii.
At the start of the legal battle, Governor Neil Abercrombie (D) asked the Attorney General and the Tax Director to show no mercy in going after the missing tax revenue. Little mercy was shown. In January of this year, the Tax Appeal Court ruled that the GET applies to sales of Hawaii hotel rooms by online travel companies. The TAT, however, was determined to not apply. Both sides appealed the decision, Hawaii seeking to collect more tax revenue, the OTCs seeking to pay less. In June, the Intermediate Court of Appeals determined that it lacked jurisdiction "because the tax appeal court has not yet entered its final decision in the consolidated tax appeal cases."
Now it has.
The Hawaii Tax Appeal Court recently issued its final judgment in the case between the State of Hawaii and nine online travel companies (OTCs). A news release issued by the Department of the Attorney General bore the following headline in bold capitals:
TAX APPEAL COURT ENTERS FINAL JUDGMENT AGAINST ONLINE TRAVEL COMPANIES FOR $246 MILLION IN UNPAID GENERAL EXCISE TAXES
The impressive $246 figure is a combination of general excise taxes, penalties and interest for the period 2000-2011. The state won an additional $25 million for statutory interest on tax penalties (included in the $246 million ).
If the state won the sought-after general excise taxes, it lost its bid for the uncollected TAT. According to the news release, "The State intends to appeal this ruling" on the following grounds:
- OTCs furnish transient accommodations;
- Under the State's TAT law, persons who furnish transient accommodations must pay TAT on their gross rentals.
Hawaii is seeking $429.8 million in transient accommodations tax, penalties and interest.
If it is ultimately determined that online travel companies must collect and remit the GET moving forward, Hawaii would gain an estimated $30 million annually. If the TAT is collected by OTCs in the future, annual collections would be approximately $60 million.
Although the state is happy with the $246 million awarded to it, it wants the additional tax revenue, too. Attorney General David M. Louie said the state is "pleased that the court determined that the OTCs owe the State general excise tax, which is imposed on persons for the privilege of doing business in Hawaii." He reminded that the OTCs are clearly doing business in the state: "Clearly, through the sale of millions of hotel room nights in Hawaii to Hawaii and other consumers, in a substantial number of Hawaii hotels, and collecting room rentals in the billions of dollars, the OTCs are doing business in Hawaii."
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