Online travel companies battle with Hawaii over hotel taxes

August 19, 2013 — Leave a comment

hotel taxes(REUTERS) Four major online travel agencies are fighting in court with Hawaii over hundreds of millions of dollars that the state says it is owed in taxes on mark-up rates for hotel room bookings.

In a setback for the companies, Hawaii Tax Appeal Court Judge Gary Chang ruled on Thursday that the online booking companies and their subsidiaries are liable for $25 million of interest on penalties for unpaid local taxes.

Companies involved in the dispute include Inc, Expedia Inc, Orbitz Worldwide Inc and, a unit of Sabre Holdings Corp.

As a result of the decision, the companies are liable for a combined total of more than $246 million in unpaid Hawaii taxes from 2000 through 2011, according to the court documents.

The companies plan to appeal, said Robin Reck, spokeswoman for the Travel Technology Association, the online travel companies’ trade association. “We are hopeful that the appellate court will reverse the judge’s ruling … they are not conducting business in the state of Hawaii,” Reck said.

The companies buy rooms from hotels at wholesale and mark up the rates for online customers. Hawaii says the companies are not paying the full local taxes due on the mark up price. The companies argue that they provide a pass-through service for customers and the hotels and have no Hawaiian business presence, so they should be exempt from the local taxes.

If the companies lose on appeal, they could owe an additional $33.3 million in general excises taxes for 2012, said Hugh Jones, one of the lawyers in the Hawaii Attorney General‘s office arguing the case for the state.

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