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Hawaii Clarifies Taxes for Online Travel Companies

Hawaii was the most recent in a line of states to take a stance in the long tax battle between online travel companies, such as Priceline, Expedia and Orbitz, and states over what is commonly referred to as “tourist development taxes,” or “bed taxes.”  Over the last couple of years, states have fallen on both sides of the issue of whether hotel rooms are taxable at the price a hotel receives for a room or the price that an online travel company sells a room.  The Hawaii case, Travelocity.com, L.P. v. Hawaii Director of Taxation, involves two taxes, the first of which is called a “GET” or “general excise tax,” and the second of which is called a “TAT” or “transient accommodations tax.”

The 2015 court decision has been clarified this month in an announcement by the state that online travel companies were in fact liable for the “GET,” along with any penalties for late payment, on their portion of the sale price for hotel rooms located in Hawaii. However, online travel companies are not liable for the “TAT.” This is similar to states like Florida, in which the amount the online travel company receives for the rental of a room within Florida is not subject to local tourist taxes.

The state reasoned that the portion of the sale that online travel companies receive is in fact for “occupancy rights” that are used in their entirety within the state of Hawaii when the sale is for a room within the state. Under that reasoning, the state determined that the revenue made by the online travel companies is subject to Hawaii state tax.

As the business model for hotel rentals changes with the highly competitive online travel companies, states are increasingly motivated to expand the statute in creative ways to increase tax revenue from the tourist industry. However, at least for now, Hawaii has denied the state its local tourist tax, or “TAT,” from these online travel companies. How other states will reconcile their own versions of the “GET” with online travel companies is yet to be determined.

About the Authors: Gerald “Jerry” Donnini II is a partner of the Law Offices of Moffa, Sutton, & Donnini, P.A. Mr. Donnini concentrates in the area of Florida and Federal tax matters, with a heavy emphasis on the tobacco, convenience store and petroleum industries . He also handles a myriad of multi-state state and local tax issues. Mr. Donnini is a co-author for CCH’s Expert Treatise Library: State Sales and Us Tax and writes extensively on multi-state tax issues for SalesTaxSupport.com.

Jeanette Moffa is an associate attorney with Moffa, Sutton, & Donnini, PA, joining the firm in 2015. Jeanette earned her law degree from Florida International University College of Law. Previously Jeanette was an adjunct professor at Palm Beach State College where she teaches a variety of English courses as well as at both Broward College and Miami-Dade College. Prior to law school, she received a Master of Fine Arts in Creative Writing with a specialization in creative nonfiction from Florida Atlantic University. Before that, she attended the University of Florida for her B.A. in English