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Online travel companies ordered to pay $70 million in penalties

By Star-Advertiser staff

LAST UPDATED: 06:08 p.m. HST, Mar 19, 2013

Popular travel sites are being told to pay Hawaii a $70 million penalty for skirting state general excise taxes over the past 10 years.

A tax appeal court has ruled that online travel companies including Orbitz Worldwide Inc., Priceline.com Inc., Sabre Inc.’s Travelocity, and Expedia Inc., including its subsidiaries Hotels.com and Hotwire, have been selling hotel rooms online for years without paying the necessary taxes.

Company representatives did not immediately return requests for comment late Tuesday.

The court ruled in January that the companies, which are based in states including Washington, Texas, Illinois and Connecticut, owe Hawaii $158 million, including interest, for unpaid taxes from 2000 through 2011.

The tax court levied the $70 million penalty Monday.

Hugh Jones, from the Hawaii Attorney General’s Office, said that all in all, the companies now owe the state about $230 million. The companies raked in more than $2.7 billion in revenue in Hawaii between 2000 and 2011, he said. 

The state says it anticipates collecting $20 million a year in tax revenue from the travel sites now that the court battle has been won. 

Unlike many other states, Hawaii doesn’t have a sales tax. But the state’s general excise tax applies to all business activities. 

Randall Roth, a law professor at the University of Hawaii, says the tax is unusual in its breadth.

“We tax a lot of things that wouldn’t be taxed elsewhere,” said Roth, estimating that the general excise tax brings in about as much revenue as a 12 percent sales tax.

Roth said he hadn’t read the court’s opinion but was confident the decision will have repercussions.

“My hunch is that it could be a whole new ball game in terms of things that are taxed,” Roth said. “I think the state of Hawaii will get very aggressive.”

The state is examining how the general excise tax might apply to other online transactions, Jones said.

“The full reach of the general excise tax as to electronic commerce is still evolving,” said Jones, noting that numerous other states are grappling with the same issue. 

But Jones said the strength of the companies’ physical presence in Hawaii — through contracts to lease property and sell hotel rooms — helped the state prove its case.

“They do have some boots on the ground here,” he said. He says online retail transactions through companies like Amazon.com Inc. may not have that physical element, but he noted the general excise tax applies to “virtually every economic activity imaginable.”

Fresh off its court victory, Hawaii is still pursuing the travel companies to get them to pay the Hawaii’s transient accommodations tax. The tax is levied on people who rent out places for short-term visitors to stay.

The attorney general’s office says the companies owe about $400 million in unpaid transient accommodations taxes. The office says the state could earn about $40 million a year if the online travel sites are made to pay the tax.

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cojef wrote:
A short fall for the State or a long fall for the travel companies??
on March 19,2013 | 03:17PM
Steve96785 wrote:
Guess how they will make back that money? Too bad for all tourism related businesses in Hawaii! The on-line companies already scoop 30-50% of the tourist travel dollar. Get ready for that percentage to jump.
on March 19,2013 | 03:36PM
Kalaheo1 wrote:
Wouldn't you know it, $70 million is almost the exact amount of the budget of the Hawaii Tourism Authority for one year!!!


on March 19,2013 | 04:30PM
Mikilai wrote:
^^^ Hahahahahaha ^^^^ good find!!
on March 19,2013 | 04:34PM
localguy wrote:
Expect this judgement to be appealed and drug out for as long as possible, a smaller amount will be negotiated. Even then, just as with the tobacco settlement, funds will disappear into the general fund to cover bureaucrats special projects, raided when bureaucrats fail to do their job, money will never see the light of day. No improvement to taxpayers, bureaucrats will find ways to justify another tax increase. This is what our bureaucrats do, nothing.
on March 19,2013 | 04:33PM
niimi wrote:
it was appealed.
on March 19,2013 | 09:23PM
Anonymous wrote:
This judgment cannot be appealed as the court has ruled that the internet travel companies must pay the back taxes fines before they are allowed to file an appeal of the judges decision, which to me, sounds like judicial blackmail and Gov Abercrombie is sitting their rubbing his hands together drooling over the monies the state might collect! It is just sickening and disgusting when politicians get greedy like that!
on March 20,2013 | 12:39AM
saywhatyouthink wrote:
I want to know why it took the state 10 years to do something about this. If I did the same as these travel companies, I'd be in jail for tax evasion and not filing a GE tax return.
on March 19,2013 | 04:39PM
GAC wrote:
took them ten years because they all are lazy .
on March 19,2013 | 04:43PM
cunfuzd4 wrote:
well they made a decision as soon as they discovered by jun-ken-po but the losing side appealed and won but the original winning side appealed the appeal and finally won so now they move forward with their original decision. Instant replay could have saved us so much time and money, don't you think?
on March 19,2013 | 07:58PM
niimi wrote:
The case has actually dragged on for years.
on March 19,2013 | 09:24PM
Anonymous wrote:
IT took that long because none of the internet travel companies are based in Honolulu, and that the State of Hawaii had no rules or regulations set up for internet commerce taxation, in fact they still don't and are still winging it, instead of creating such regulations, it is just sheer stupidity on the part of the State of Hawaii and Gov Abercrombie (da political zombie!)
on March 20,2013 | 12:42AM
Ronin006 wrote:
Abercrombie already has it spent. Not one penny of it will be used to pay down the state's debt.
on March 19,2013 | 04:47PM
CriticalReader wrote:
Gotta pay the increased Judge salaries.
on March 19,2013 | 05:24PM
kailua000 wrote:
whose pockets will that $70M line? how will that money be used?
on March 19,2013 | 06:29PM
815aria wrote:
I might be misunderstanding this but when a visitor books a trip through Expedia, they stay at a hotel. The hotel pays the state tax and the accommodation tax for this visitor. If Expedia has to pay this tax as well isn't the state double dipping? I do work in the travel industry and I just don't get this.
on March 19,2013 | 07:35PM
Bdpapa wrote:
Pretty simple. Expedia pays the gross and the hotel pays their share which is less.
on March 19,2013 | 08:33PM
kennysmith wrote:
on March 19,2013 | 07:41PM
soundofreason wrote:
" The office says the state could earn about $40 million a year if the online travel sites are made to pay the tax.">>>>Yeah, good luck "making" them.
on March 19,2013 | 08:14PM
entrkn wrote:
Hawaii must make sure they are tracking the income from time-share referrals... I was fired because I wasn't referring enough time-share sales presentations when I was supposed to be selling activities.
on March 19,2013 | 08:24PM
Anonymous wrote:
The major problem here is that the state of Hawaii is sending out mixed messages when it comes to collecting taxes from businesses, whether they be brick and mortar or on the internet! Those companies that owe the State millions of dollars are given a break and their bills are forgiven, now the State of Hawaii is forcing these internet travel companies to pay up in order to continue their court appeals on whether or not they should be paying back taxes! That is wrong on so many different levels that these internet travel companies should take the State of Hawaii to federal court and and file a discriminatory lawsuit against Gov Abercrombie and the State, for blackmailing tactics! Having to pay off their back taxes fines before they can appeal the courts judgment on their trial should be ruled illegal!
on March 20,2013 | 12:37AM
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