It’s taken five years, but the State of Hawaii is finally looking at a big tax windfall in the form of a recent Hawaii Supreme Court ruling. The case concerns nine online travel companies that allegedly sold Hawaii hotel rooms but didn’t pay state General Excise Taxes from 2000 to 2011.
“In 2010, the state tax department issued GE tax and TAT assessments against the online travel companies for back taxes starting from 2000,” stated a Mar. 17 state Attorney General’s news release. “The online travel companies refused to pay, arguing that their revenue generating activities did not occur in the State of Hawaii. In today’s ruling, the Supreme Court upheld the very broad reach of Hawaii’s general excise tax and stated that general excise tax applies to ‘virtually any economic activity imaginable.'”
In 2013, Tax Appeal Court Judge Gary Chang ruled that the online travel companies (OTC for short) owed the state about $150 million.
“Since 2000, the OTCs have made sales of over $2.7 billion of Hawaii hotel rooms,” states this Jan. 14, 2013 Hawaii Reporter story. “The OTCs collected sufficient money to cover the GET and transient accommodation taxes from consumers purchasing Hawaii hotel rooms, but never filed any returns or paid any taxes to the State of Hawaii. Judge Chang ruled that the GET is a privilege tax imposed on businesses for the privilege of doing business in the State of Hawaii. He emphasized the broad nature of the GET and ruled that it included the sale of Hawaii hotel rooms by OTCs.”
Hawaii Reporter also found that though the court ruled the companies didn’t owe any Transient Accommodations Tax (TAT), “the court’s [earlier] ruling could result in future GET collections of approximately $20 million annually.”
The companies insisted that they didn’t need to pay the GET and appealed Chang’s ruling, which brought us to yesterday’s Hawaii Supreme Court ruling. Once again, the courts found that the OTCs do have to pay the GET and owe the State of Hawaii millions in unpaid taxes.
“In the transactions that were assessed by the State the online travel companies were the merchant of record in that they received 100 percent of the price of the hotel room from the customer, and after the transient checked out, the hotels were paid the wholesale price of the room,” Hawaii Deputy Attorney General Hugh Jones explained in a comment posted to this Mar. 17 Civil Beat story on the ruling. “Because the general excise tax is a gross receipts tax, the State argued that the OTCs owed the GET on their gross and not their net income. The Supreme Court ruled otherwise, finding that they are travel agents.”
As far as a further appeal from the OTCs, they could possibly ask the U.S. Supreme Court to hear the case, but Deputy AG Jones didn’t think it likely. “It’s an extreme long shot, to put it mildly,” Jones told me.
Photo of home of the Hawaii Supreme Court: D Ramey Logan 2011/Wikimedia Commons