Last updated: 01:37 PM ET, Wed March 18 2015

Hawaii Hits OTAs with Multi-Million-Dollar Tax Bill

Travel Technology | Ryan Rudnansky | March 18, 2015

Hawaii Hits OTAs with Multi-Million-Dollar Tax Bill

Nine online travel companies—including Expedia, Orbitz, Priceline and Travelocity—must pay millions of dollars in back taxes to the State of Hawaii for selling Hawaii hotel rooms, the Hawaii Supreme Court ruled on Tuesday.

"This landmark ruling is the first time the Supreme Court ruled that online commerce may be just as subject to pay general excise taxes as local brick-and-mortar businesses," Hawaii Attorney General Doug Chin said in a statement. "It is the result of years of effort by the Attorney General's office to collect state taxes from national companies who profited from selling Hawaii hotel rooms."

In 2010, the Attorney General’s office hit the online travel companies with GET and transient accommodation tax assessments, tracing all the way back to 2000. The companies fought against the back taxes, saying that they didn’t hold a physical presence in the State of Hawaii and therefore taxes shouldn’t apply.

But the Hawaii Supreme Court dropped the hammer on Tuesday, declaring that the GET law applies to any companies generating business in Hawaii, regardless of whether they physically occupy the state or not.

"[I]t is clear the occupancy rights that [these companies] are selling to transients are wholly consumable and only consumable in Hawaii," the Supreme Court ruled, per the Pacific Business News.

Added Chin in a statement: "It's a privilege to do business in Hawaii. Bottom line, these online travel companies derived substantial revenues from the sale of Hawaii hotel rooms and they need to pay their fair share."

Expedia, the largest online travel agency (OTA) in the world by global bookings, could be hit substantially. Bloomberg projected in February that Expedia alone could pay as much as $626 million in taxes, penalties and interest to Hawaii through 2015.

Expedia booked roughly 54 percent of all U.S. hotel rooms in 2014, according to PhoCusWright.

Many online booking sites have paid taxes based on wholesale room rates, which has hurt state and local governments. According to a 2011 study by Center for Budget and Policy Priorities, state and local governments could be collecting $396 million more per year if booking sites paid taxes on more than just wholesale room rates.

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