Last updated: 01:45 PM ET, Thu March 19 2015

OTAs Applaud Decision by Hawaii Supreme Court

Travel Technology | Ryan Rudnansky | March 19, 2015

OTAs Applaud Decision by Hawaii Supreme Court

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The Hawaii Supreme Court ruled on Tuesday that nine online travel agencies (OTAs)—including Expedia, Orbitz, Priceline and Travelocity—must pay a portion of the state’s general excise tax (GET) for the period from 2000 to 2010, but they don’t need to pay the transient accommodation tax.

The inclusion of the transient accommodation tax could have garnered state and local governments in Hawaii hundreds of millions of dollars, including an estimated $626 million from Expedia alone.

Instead, the decision calls for the state to refund the “vast majority” of the $247 million OTAs paid into a fund reserved for excise taxes in 2013 and for OTAs to pay a portion of the excise taxes, which Hawaii Attorney General Doug Chin estimated to amount to “tens of millions of dollars.”

The Travel Technology Association, the association for online travel companies that counts Expedia, Orbitz, Priceline and Sabre among its members, is undoubtedly happy about the decision.

"We applaud today's confirmation and well-reasoned decision by the Hawaii Supreme Court that Hawaii hotel taxes do not apply to OTCs and the amount they charge for their online services," Travel Technology Association President Steve Shur said in a statement. "As the state Supreme Court, and dozens of U.S. courts before it have recognized, online travel companies are not hotels, and therefore should not be paying hotel taxes."

While the State of Hawaii would have benefitted significantly more if transient accommodation taxes were required from OTAs, it’s worth noting that this is still a landmark case that sets some parameters on what OTAs are accountable for. It is at least somewhat of a compromise in an ongoing battle between state and local governments and online travel companies that is sure to rage on moving forward. Some local reports are estimating that the OTAs included in the decision will have to pay the State of Hawaii about $70 million in excise taxes.

"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," Chin said in a statement on Tuesday. "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."

The case will now be handed off to the Tax Appeal Court for a final ruling on the amount owed to the state.

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