A state appellate judge has ordered online travel companies including Expedia, Hotels.com, Priceline, Hotwire, Orbitz, and Travelocity to pay the state about $150 million in Hawaii general excise tax obligations dating back to 2000.
Judge Gary W.B. Chang of the Tax Appeal Court granted summary judgment to the state, concluding that the companies must pay Hawaii general excise tax on the sale of Hawaii hotel rooms.
The companies had collectively argued that the tax does not apply to them because their business is conducted outside of Hawaii.
However, Chang ruled that the GET is a privilege tax imposed on businesses for the privilege of doing business in the state.
The state estimated the amount of unpaid taxes at roughly $110 million and interest owed on that amount at about $40 million.
Ron Heller, an attorney for the companies, said in a statement issued on Saturday, “We are in the process of analyzing the ruling and determining appropriate steps to take, but an appeal is certain.”
State Attorney General David Louie defended the ruling, arguing, “Hawaii hotels are good corporate citizens, paying their fair share of taxes to support the state’s infrastructure such as roads, schools, personnel and other costs and the (online travel companies) need to also play by the rules and pay their fair share.”
Gov. Neil Abercrombie hailed the decision.
“This is a significant ruling for the people of Hawaii,” Abercrombie said in a statement. “When I first came into office, I made this a top priority after I discovered the previous administration had chosen not to pursue these taxes.
“The court’s ruling shows that we were right to pursue this.”
Chang’s ruling could have a long-term economic impact for the state.
Since 2000, online travel companies have sold more than $2.7 billion worth of Hawaii hotel rooms. The companies collected enough money to cover the general excise tax and transient accommodation taxes from customers purchasing Hawaii hotel rooms but did not file returns or pay any taxes to the state, according to the Attorney General’s office.
Chang had previously ruled that the companies did not owe the transient accommodation taxes on these sales. However, by affirming Friday that online travel companies are required to pay Hawaii general excise tax, Chang paved the way for the state to collect about $20 million annually starting with 2012.
The state is seeking penalties for the companies’ failure to file tax returns and pay the taxes due, with a hearing set for March 8. A trial date has been set for April 15 to resolve any outstanding issues.