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Wisconsin Follows the Online Travel Company Trend

I have been writing about the taxability of the online travel companies for some time. Recently, the Florida Supreme Court case of Alachua County v. Expedia, Inc., ruled that the local bed tax should be imposed on the amount the hotel received rather than the higher amount the customer pays the Online Travel Company (“OTC”). Similarly, the Court of Appeal of Wisconsin recently held that reservation facilitation services are not among the taxable services enumerated in section 77.52(2)(a)1, Wisconsin Statutes.

In the Wisconsin case, the Wisconsin Department of Revenue (“WDOR”) attempted to assess tax on any “internet service provider” that provides lodging throughout Wisconsin. The WDOR argued that the markup amount retained by the internet service provider is subject to tax under section 77.52(2)(a)1, Wisconsin Statutes.

However, the law worked very differently. Specifically, in Wisconsin, section 77.52(2)(a)1, Wisconsin Statutes, tax is only imposed on “the furnishing of rooms or lodging to transients by hotelkeepers, motel operators and other persons furnishing accommodations that are available to the public, irrespective of whether membership is required for use of the accommodations.” The crux of this case turns to the word “furnishing.” Is an online travel company “furnishing” a hotel room?

Typically, a consumer purchasing a hotel room through an online travel company would log onto the online travel company’s site, find a hotel, enter personal information, and pay for the hotel room. The customer then receives a confirmation from the online travel company and proceeds with travel arrangements.

Here, Orbitz was no different than a typical online travel company. Orbitz contracts with hotels, which are not owned, operated, or managed by Orbitz, for the right to facilitate reservations. In this process, Orbitz books the hotel room for the customer. Upon a customer’s check in, Orbitz pays the hotel in full, then the hotel remits the mark up portion back to Orbitz.

The overarching question, which various Department of Revenues still seem to fight, is whether the markup portion is subject to tax by the state. Overwhelmingly, states across the United States have stated that it is not subject to tax. Wisconsin now joins that group of states.

Effectively, Wisconsin took an even stronger approach. The Court of Appeals of Wisconsin stated that Orbitz’s reservation facilitation services are simply not among those taxable services enumerated in section 77.52(1)(a)1, Wisconsin Statutes. As such, the court never even reached the holding as to whether the markup is taxable, because the reservation facilitation services are simply not included in the Wisconsin taxing statute.

Once again, we see a Department of Revenue stretching the means and bounds of a taxing statute to benefit its own means. However, as seems to typically be the case, a court finally put an end to the DOR’s taxing scheme.

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

Mr. Donnini also regularly represents cigarette, beverage, and tobacco distributors against the Division of Alcohol and Tobacco in connection with refund claims and audit defense. While at Nova Southeastern University, Shepard Broad Law Center, Mr. Donnini was the Notes and Comments Editor of Nova Law Review and Vice President of the Sports and Entertainment Law Society. Prior to attending law school at Nova in 2008, Jerry was an accountant for National Retail Properties, Inc. Mr. Donnini earned his LL.M. in Taxation at New York University

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