Media Coverage
Source: Bloomberg Law
Media Coverage
01.30.15
The tax war surrounding online travel companies (OTCs) continues in 2015, according to Bloomberg Law’s Tax Management Weekly State Tax Report. At issue is the “merchant model,” used by OTCs, which contends that the rate on which consumer-paid occupancy taxes are based is the wholesale room price the OTC negotiates with and pays to hotels. OTCs say they do not owe occupancy taxes on the fees they charge to the consumer in addition to those wholesale rates, according to Tax Litigation partner Richard Nielsen.
“Under the merchant model, the website operator is not responsible for tax on the delta that they earn between what they pay to the hotel and what the customer pays to them.”
But many states and local jurisdictions disagree, and some seek millions of dollars in back taxes from OTCs, such as in a 2013 Texas class action in which 172 cities successfully sued OTCs for $55 million in underpaid taxes, penalties and interest. A Hawaii Supreme Court decision in a similar case is expected early this year.
According to Nielsen, the primary problems are that most occupancy tax rules were written decades ago, and states have failed to codify uniform terminology among different jurisdictions, leading to confusion and uncertainty on the tax issue.