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North Carolina: OTCs Not Liable For Occupancy Tax

  • Aug 21, 2014 | Gail Cole

 Nags Head, Dare County, North Carolina.

The North Carolina Court of Appeals has ruled that eleven online travel companies (OTC) are not required to collect and remit taxes occupancy tax in four North Carolina counties: Buncombe, Dare, Mecklenburg and Wake.

The OTCs (defendants) negotiate reduced rates with hotels and the hotels are obligated to honor them. Consumers select and purchase hotel rooms on the OTC websites, where they may also make reservations with airlines, car rental companies and cruise lines. Payment is made via credit card to the OTC, not to the hotel.

The plaintiffs in the case, the counties of Buncombe, Dare, Mecklenburg and Wake, all impose occupancy tax that is “based on a percentage of the receipts derived from the rental of hotel rooms….” They accuse the OTCs of charging consumers “a rate higher than the discount rate negotiated with the hotel” and yet remitting to the plaintiffs “a tax amount based on the reduced rate.” As a result, they claim the defendants “are liable for substantial unremitted tax amounts.”

Mecklenburg and Wake counties “impose the responsibility of collection upon the ‘operator of a taxable establishment.’” Dare and Buncombe counties “impose the responsibility of tax collection upon the ‘operator of a business subject to a room occupancy tax.’” The Court of Appeals agreed with the trial court that the OTCs cannot “be classified as operators of ‘taxable establishments’ or ‘businesses subject to a room occupancy tax’ in any of the four counties. Therefore the occupancy tax does not apply to OTCs.

Since the OTCs are not subject to county occupancy taxes in the first place, they cannot be asked to remit additional, unremitted tax amounts. Additional information is available in the full opinion.

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Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.