News and Insights

Hawaii Supreme Court: Online Travel Companies Liable for General Excise Tax, Not Transient Accommodations Tax

Tax Development Mar 20, 2015

The Hawaii Supreme Court (“Court”) unanimously affirmed the Tax Appeal Court (“tax court”), which held that online travel companies (OTCs) were subject to Hawaii’s general excise tax (GET) for online sales of hotel rooms, as well as interest and penalties. The three issues before the Court were: (1) whether the OTCs’ online sales of Hawaii hotel accommodations were subject to the GET under Haw. Rev. Stat. § 237-13; (2) if the OTCs’ online sales were subject to GET, whether the GET Apportionment Provisions, under Haw. Rev. Stat. § 237-18(g), were applicable to the transactions to determine the appropriate amount of liability; and (3) whether the transient accommodations tax (TAT) applied to the OTCs.

The Court rejected the OTCs’ arguments that: (1) “in the state” means a “physical geographical limitation” and (2) the OTCs’ services are not “used or consumed in the state.” The Court stated that “it is inescapable” that the OTCs have sufficient business and other activities in Hawaii to impose the GET on the gross income resulting from the OTCs selling of hotel room accommodations. The Court explained the OTCs received income by selling the right to occupy hotel rooms located in Hawaii to transients, contracted to have access for that right through contracts with the hotels, actively solicited customers for Hawaii hotel rooms, and actively solicited hotels to contractually provide the right to sell the right to occupy hotels on the OTCs’ websites. Further, the OTCs benefited through the transients’ use and benefit of the state services such as police, fire, and use of the roads. All of this gave evidence that the OTCs were liable for GET.

With respect to the GET apportionment, the Court disagreed with the tax court decision that the GET Apportionment Provisions under Haw. Rev. Stat. § 237-18(g) did not apply. The Court held that the transactions at issue met the three elements of the GET Apportioning Provision: (1) the OTCs operate as travel agencies; (2) the gross income resulting from the transactions are divided between the operators of the transient accommodations (hotels) and the travel agencies or tour packagers (OTCs); and (3) the transactions supply transient accommodations at noncommissioned negotiated contract rates. Thus, the case was remanded to the tax court for appropriate apportionment between the OTCs and the hotels for the OTCs’ correct GET liability.

Finally, the Court also affirmed the tax court’s decision that the OTCs were not subject to the TAT. The Court reasoned that the OTCs are not operators within the meaning of Haw. Rev. Stat. § 237D-1, thus the OTCs are not subject to TAT. Rather, the hotels are the operators liable for the TAT.


Jeremiah T. Lynch