Court: Online Companies Must Pay Tax on Booking Fees

Revenue officials said they don't yet know how much the companies will be required to pay.

By MATT VOLZ, Associated Press

HELENA — Online travel companies such as Priceline, Travelocity, Orbitz and Expedia must pay Montana’s sales tax on lodging and car rentals for the fees they collect from customers who book through their websites, the Montana Supreme Court ruled.

The high court said in its Wednesday ruling that the companies must pay back taxes dating to November 2010. That is when the state Department of Revenue filed its lawsuit over the fees the companies charge customers above the wholesale rates at which they book rooms and vehicles.

Revenue officials said they don’t yet know how much the companies will be required to pay.

“There will be a gathering of information with the (online travel companies) for a determination of what they owe,” said Dan Whyte, the department’s legal counsel.

Online travel companies typically negotiate wholesale rates on hotel rooms or car rentals, then charge their customers a higher amount that includes the companies’ fee. The online companies pay the hotels and car rental owners taxes on the wholesale rates, and the owners send those taxes to the state. But the online companies don’t pay taxes on their fees, which is what the state contested.

The Supreme Court’s decision partially reverses an earlier ruling by District Judge Kathy Seeley, who said the online booking companies are similar to travel agents and nothing in state law requires them to pay taxes on their fees.

Montana does not have a general sales tax, but it does charge a 4 percent lodging facility use tax, a 3 percent lodging sales tax and a 4 percent rental vehicle sales tax.

The justices agreed with Seeley that the lodging facility use tax applies only to the lodging owners and operators, and not to the online companies. However, a majority of the justices concluded the sales tax law on lodging and car rentals is written to allow services to be taxed, which does apply to the fees that online travel companies charge their customers.

The online companies had argued, and two dissenting justices agreed, that none of the taxes apply to them. Justice Laurie McKinnon wrote, and Justice Jim Rice agreed, that state lawmakers intended to create a limited sales tax that did not include intermediaries such as the online travel companies.

The nine companies named as defendants include Priceline, Orbitz, Expedia and Travelocity. They also include Expedia affiliates Hotels.com and Hotwire, along with Orbitz subsidiary CheapTickets and Priceline subsidiary Travelweb. The ninth defendant is a website called Suite59.com.

Travelocity spokesman Keith Nowak and Expedia spokeswoman Maureen Thon said they had no comment on the ruling. The other companies did not return requests for comment by phone or email.

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