Summer vacation season is here – and it’s yet another area where sales tax shows up.
The sales tax associated with services is a different sales tax animal as compared to tangible personal property. The taxing of certain travel related services, such as lodging, can be taxable in some states. The likes of Expedia and Orbitz have a long history battling various states in the courts even as localities start making deals with new players in hospitality.
Here’s a brief overview.
The debate goes way back
A decade ago the Tax Foundation was addressing how local officials in 25 states and the District of Columbia sought to reinterpret hotel occupancy tax ordinances to apply to amounts paid by consumers to online travel booking services (OTCs), “with limited success.”
At that time, OTCs had won cases in 18 states, the companies’ booking of hotels and other travel details often putting them outside what the Foundation called “the proper scope of hotel occupancy taxes.” The taxation question was further tipped in OTCs’ favor by relatively few states levying sales tax on services (which now may be steadily changing).
Nevertheless, the Foundation concluded in its 2012 article, “local governments should not expect easy revenue from pursuing such claims.”
Three years later, a District of Columbia Court of Appeals ruled that OTCs Expedia, Priceline and Orbitz had to pay the District more than $60 million in unpaid sales tax dating back to 1998. The court upheld a previous ruling that the online travel agencies were “vendors” subject to sales tax on the retail rates they charged consumers, including the online travel agencies’ service fees, and not just for the sales tax on the net rate that they collected from consumers and handed over to hotels.
Working with jurisdictions
Not all jurisdictions were as lucky as D.C. Shortly after that decision, courts blocked states’ moves to require OTCs to collect tax, notably lodging taxes in California.
More recently, tax jurisdictions big and small seem to have become aware of the money they’re missing, especially when it came to accommodations. To cite Expedia as one example, some 16 states require the OTC to collect some kind of sales tax.
Three years ago it was determined that booking agents (including OTCs) were required to collect Pennsylvania 6% state and local hotel occupancy taxes on the full retail rate charged for a hotel room. The applicable taxes must be charged on accommodation fees and any other amount charged by the booking agent, not the hotel.
Yet just recently the Louisiana Court of Appeals determined that OTCs do not owe local sales tax on the fees they charge to their customers but the hotels in question do.
Traveling overseas? And as nexus and sales tax requirements loom in the U.K., British opponents proclaim that taxing online sales of OTCs will produce nothing short of a “significant impact” on travel businesses.
Some in the travel industry find it easier to just work with the tax man. Back in the U.S., Airbnb – often touted as a leader among online travel services working proactively with tax jurisdictions – spells out occupancy and other taxes by state on its site.
(A host of federal taxes, incidentally, are usually baked right into the cost of an airline or other travel ticket).
In short, in this always-changing field, don’t be surprised to encounter sales tax in many spots during your vacation travels. Seems you can’t leave home without it.
TaxConnex can help your business stay on top of your taxability and ensure you are maintaining compliance in the states where you have an obligation. Get in touch to learn how we can help you!