Hawaii lets online travel companies off the hook for transient AT

transient accommodations tax

transient accommodations tax

Hawaiian hotelsAnother state has been thwarted in its efforts to extend sales taxes to online travel companies (OTCs). On March 17, Hawaii’s Supreme Court awarded OTCs a partial victory, unanimously holding Travelocity and other OTCs were not liable for Hawaii’s transient accommodations tax (TAT), although they do have to pay a general excise tax (GET). The decision is likely the first ruling from a state supreme court on this subject. Previously, intermediate appellate courts in Colorado and North Carolina rejected state efforts to collect lodging taxes, which are similar to Hawaii’s TAT.

In 2011, Hawaii’s director of taxation assessed nearly a dozen OTCs for unpaid excise and transient accommodation taxes. The excise tax is not a sales tax. Hawaii’s GET is a tax on the gross receipts of businesses. On most services the GET is 4% or 4.5%. A business may elect to pass the GET onto its customers, which makes it seem like a sales tax, but it is not required to do so.

The TAT is a 7.25% sales tax on hotel rooms. The “operator” of the hotel or accommodation is responsible for collecting the tax and remitting it to the state. OTCs, of course, do not own or operate hotel rooms. They contract with hotels to sell rooms online. The hotel charges the OTC a net rate for the room; the OTC then sells the room for a price above the net rate and keeps the difference.

Nobody disputes the hotels are liable for the GET and TAT on their respective share of the room sales. But the OTCs argued they should not have to pay either tax on their markups, as they neither physically conduct business within the state of Hawaii nor personally operate any hotel rooms. The Hawaii Supreme Court, following the leads of the intermediate courts in Colorado and North Carolina, agreed with the OTCs on the latter point. The court rejected the director of taxation’s efforts to expand the definition of “operator” under the TAT to OTCs.

Hawaii law imposes the transient accommodations tax on businesses involved in the “actual furnishing of transient accommodations.” The word “actual” is key here, the court explained, because it indicates the Hawaii legislature only intended to tax a single “operator” per hotel room. The law “does not contemplate or allow for multiple operators when a transient accommodation is furnished.” This means only the hotels, and not the OTCs, are responsible for the TAT.

However, the OTCs are liable for the GET, because that is a tax on both the “operator” of a hotel and any travel agency or tour packager. In this context, the court said, OTCs are travel agencies. And even if they lack a physical presence in Hawaii, they remain subject to the excise tax because they “receive income by virtue of selling the right to occupy hotel rooms located in Hawaii.” Still, the court’s decision will significantly reduce the OTCs’ tax bill, which would have been over $250 million had the state prevailed on the TAT issue.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog PrivyCouncil.info

Sales and use tax changes for October 2014

Sales tax rate changes October 2014

Sales tax rate changes October 2014

Sales and/or use tax changes for 16 states in Zip2Tax products since September 2014. There were changes in Alaska, Alabama, Arizona, Arkansas, California, Idaho, Kansas, Minnesota, North Carolina, Nebraska, Nevada, Oklahoma, Ohio, Texas and Washington.

In Alaska, tax rates changed for Sitka, Skagway and Whittier.

In Alabama, tax rates changed for Enterprise, Childersburg, Greensboro, Marion, Tuskegee, Jackson, Trafford and Union.

In Arizona, tax rates changed for Flagstaff.

In Arkansas, tax rates changed for Crawfordsville, Ekins, Greers Ferry, Cleveland County, Crawford County and Crittenden County.

In California, tax rates changed for Anderson, Cotati, Davis, Hayward, San Pablo, Truckee and Watsonville.

In Idaho, tax rates changed for Nez Perce County.

In Kansas, tax rates changed for Fairway and Mulvane.

In Minnesota, tax rates changed for Douglas County.

In North Carolina, tax rates changed for Davidson County.

In North Dakota, tax rates changed for Burleigh County, Leeds, Morton County, Watford City and West Fargo.

In Nebraska, tax rates changed for Fairfield, Hickman, Atkinson and La Vista.

In Nevada, tax rates changed for Carson City.

In Oklahoma, tax rates changed for the counties of Greer, Latimer, Marshall, Washita and Logan and the cities of Kiowa, Kaw City and Chouteau.

In Ohio, tax rates changed for Erie County.

In Texas, tax rates changed for Tatum, Aubrey, Annetta, Fayetteville, Lakeport, Rogers, Shavano Park, Terrell Hills, Lucas and Tuscola.

In Washington, tax rates changed for Marysville TBA.

There were 12 states with ZIP code changes effective after September 2014 including Alabama, California, DC, Delaware, Massachusetts, North Dakota, New Hampshire, New Mexico, Ohio, Oregon, Tennessee and Texas.

Download the full ZIP code change documentation.

For September’s changes click here.

Angel Sauer

Angel Sauer, sales tax research team leader

Online travel companies continue to battle over sales tax collection

Hotel occupancy taxes ruled not due on online markups in North Carolina

Online travel companies (OTCs) won another important sales tax victory last month in North Carolina, where a state appeals court rejected efforts by four counties to assess occupancy taxes on the fees collected for Internet-based reservations of hotel rooms. The OTCs obtain rooms for the hotels at a discount and sell them to customers at a higher rate. The counties argued the OTCs should then pay occupancy taxes on their higher rate. The courts disagreed.

Online Travel Companies

Online travel companies (OTCs) won another important sales tax victory last month in North Carolina, where a state appeals court rejected efforts by four counties to assess occupancy taxes on the fees collected for Internet-based reservations of hotel rooms.

The North Carolina legislature allows counties to assess occupancy taxes through local ordinance. But the counties may only tax those transactions already subject to the state’s sales tax. The four counties in this case all impose occupancy taxes: 6% in Wake County, 5% in Dare County, 4% in Buncombe County and 8% in Mecklenburg County. All four counties filed separate lawsuits against a number of OTCs seeking judgments the companies were required to collect and remit occupancy taxes. The four lawsuits were eventually consolidated and heard before a state superior court judge, who granted the defendants’ motion to dismiss in 2011.

In a decision issued August 19th of this year, a three-judge panel of the North Carolina Court of Appeals upheld the superior court’s dismissal. Judge Wanda Bryant, writing for the panel, said sales and occupancy taxes only applied to “retailers” or a “similar type business.” The counties conceded the OTCs were not retailers. Therefore, the question was whether they constituted “similar type” businesses. Bryant said they were not. In this context, the “type” of business was anyone who operated “hotels, motels, tourist homes, or tourist camps,” not companies that merely “arrange” the rental of such facilities via the Internet. The counties argued the court should read the definition of “similar” business more “broadly,” but Bryant said that would “ignore” the clear language of the state’s sales tax law.

The appeals court also rejected the argument, principally raised in Mecklenburg County’s complaint, that the OTCs had a duty under their contracts with individual hotels to collect and remit sales tax on the marked-up prices charged to online customers. Bryant said the trial court properly granted summary judgment to the OTCs on this point, noting the counties failed to identify any North Carolina statute or binding case law on this point. Unlike other states, Bryant said, North Carolina does not recognize a general duty to remit sales tax based on “contractual undertaking.”

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog Bonham’s Cases.

North Carolina repeals Back To School sales tax holiday

North Carolina sales tax holiday

North Carolina sales tax holiday

Since 1996 when New York State enacted the first sales tax holiday, similar initiatives have gained popularity in a growing number of states. Typically, sales tax holidays last for a weekend—usually in the beginning of August to coincide with back-to-school sales—and items such as school supplies, books, and clothing are included in the temporary tax break.

North Carolina is not holding a sales tax holiday for back to school shopping

North Carolina is not holding a Back To School sales tax holiday this year.

However, like all other tax exemptions, sales tax holidays come at an expense and the state of North Carolina has recently decided that the costs are too high to justify. The state’s sales tax holiday was first implemented in 2002 and was scheduled to take effect during the first weekend in August. It included items such as clothing, footwear, school supplies, sporting equipment, and computers. According to a notice posted by the North Carolina Department of Revenue, none of these will qualify for the annual tax holiday.

The repealing of the sales tax holiday represents just one aspect of a large scale budget overhaul negotiated by state lawmakers in recent weeks. The incentive is straightforward: repealing the tax holiday is estimated to save North Carolina more than $13 million in lost revenue, a sizable amount of money for a state struggling to balance its budget.

The state sales tax in North Carolina is presently 4.75%, but in most districts the actual rate hovers around 7%.  Since the average parent with children in school is expected to shell out a sizeable amount of money on school supplies in the upcoming weeks, the new policy will be felt by large number of North Carolina families.

Even without the tax holiday, there is some good news on the horizon for North Carolina residents in need of school supplies. That’s because retailers are reaching out to consumers directly, offering back-to-school sales under the banner of “Better Than Tax Free” to fill the void left by the tax holiday.

For example, the Concord Mills outlet will offer all consumers a 10% discount on their purchases during the weekend of July 25 –27, which is an ever greater incentive for consumers than the past sales tax holidays. So even though the tax holiday may have been repealed, residents can still take advantage of lower prices by choosing to shop in Concord, North Carolina, during this weekend promotion. Alternatively, consumers can benefit from sales tax holidays by shopping in the neighboring states of South Carolina, Virginia, and Tennessee during the weekend of August 1-3.

North Carolina residents prepare for expiration of sales tax exemptions

North Carolina sales tax exemptions

North Carolina sales tax exemptions

North Carolina sales tax exemptions expire

North Carolina’s sales tax exemptions on many items such at sporting events is set to expire Jan. 1st, 2014.

On January 1st, 2014, a number of sales tax exemptions are set to expire in North Carolina. Next year, residents will need to pay the normal 4.75 % state sales tax rate on mobile homes, chiropractic supplements, and tickets for events like movies, sporting events, concerts and museums. Previously, the state didn’t charge sale taxes on these items or charged a lower rate.

The North Carolina government plans to end these exemptions as part of a deal to update the state’s tax code. The government will use the extra revenues from these sales to reduce both corporate and personal income tax rates.

Read more at Blue Ridge Now

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