Online travel company did not owe Indiana sales and innkeeper’s taxes for facilitating rental of hotel rooms

Online travel company did not owe Indiana sales and innkeeper’s taxes for facilitating rental of hotel rooms

Online travel company was not a retail merchant, so it did not owe Indiana sales and innkeeper's taxes

Online travel company was not a retail merchant, so it did not owe Indiana sales and innkeeper’s taxes

In Orbitz LLC v. Indiana Department of State Revenue (Dec. 20, 2016), the Indiana Tax Court characterized the key issue as “whether the Department erred in issuing sales and innkeeper’s tax assessments against Orbitz based on the retail rather than the wholesale rate of Indiana hotel rooms.”  (The Court did not reach Taxpayer’s claims regarding constitutional violations, equitable estoppel, and the Internet Tax Freedom Act.)

For the 2004 – 2006 tax years, Taxpayer’s customers used its website to search for, compare prices for, and reserve, among other things, lodging.  Taxpayer entered into hotel listing agreements for Indiana properties.  Under those agreements, Taxpayer publicized the rooms, facilitated pre-paid reservations, and collected sales and innkeeper’s taxes based on the wholesale room rates set by the hotel operators.  Taxpayer charged customers a higher retail rate.  After the customer checked out, the hotel operator invoiced Taxpayer for the wholesale rate and tax recovery amounts, and Taxpayer kept the facilitation and service fees (which comprised the higher retail rate charged).

In 2008, the Department audited Taxpayer and charged it more than $200,000, asserting it should have collected tax based on the retail rates.  Taxpayer’s protest of the assessment was denied, Taxpayer appealed, and the parties filed summary judgment motions in 2013.  Oral argument was heard before the Court in 2014.

During the tax years, Indiana charged a 6% sales tax rate (now 7%) on retail transactions, defined as “a transaction of a retail merchant that constitute[d] selling at retail[.]” (quoting Ind. Code § 6-2.5-1-2(a) (emphasis by Court).  The Court further explained that the “innkeeper’s taxes [imposed by various counties] were similar to sales taxes . . . [and were] imposed and administered in the same manner as the sales tax . . . .”  (citing Ind. Code § 6-9-9-2).  According to the Court, “finding a liability for sales tax under Indiana Code § 6-2.5-4-4 necessitates finding a liability for the innkeeper’s taxes because both taxes were imposed based on the same tax incidents during the period at issue.” Opinion, at 6-7.  (The Court in a footnote explained that it did not rely upon or find persuasive several decisions from other jurisdictions released in recent years regarding the liability of online travel companies in similar circumstances because those cases are “dependent on state-specific statutory language” for their resolutions.)

As a matter of law, Taxpayer was not a retail merchant.  Opinion, at 9.  Taxpayer could only confirm reservations.  The Court explained that it was the hoteliers “alone” – not Taxpayer – who “delivered or transferred possession and control of hotel rooms to customers during the check-in process.”  Id.  The hotel operator’s obligation to provide rooms was only executory until the customer checked-in or cancelled the reservation.  Because it was not a retail merchant, Taxpayer was not liable for the sales and innkeeper’s taxes.  Additional tax due, if any, would be the responsibility of the hoteliers as retail merchants.  Opinion, at 10.

photo by RoganJosh

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