Online travel companies fight lodg or occupancy taxes in Colorado

lodging or occupancy taxes

lodging or occupancy taxes

Lodging or occupancy sales taxesMany state and local governments impose special sales taxes on hotel rooms. Often called lodging or occupancy taxes, hotels must assess these levies against the price charged for a room. But what about travelers who book and pay for their rooms online using a third-party website like Expedia or Priceline? These online travel companies (OTCs) make money by paying the hotel less than the customer pays for the room. For example, if the OTC charges the customer $100 for a room, the hotel might receive $70, with the OTC keeping the remaining $30 as its fee.

Local governments understandably want to collect lodging taxes on the full $100. But their ability to do so depends on the wording of each locality’s tax laws. Recently, a state appeals court in Colorado rejected Denver’s efforts to collect its “lodger’s tax” from OTCs. The court said the tax ordinance, as written, did not apply to the specific services provided by these companies.

The city and county of Denver impose a 10.75% tax on lodging. Historically, Denver never collected this lodger’s tax on travel agents or other companies that aided travelers in making hotel reservations. But in 2010, Denver’s finance manager decided to assess lodger’s taxes against several OTCs. An administrative hearing officer upheld the manager’s decision and said the OTCs were liable for more than $8.1 million in unpaid lodger’s taxes dating back to 2001. A Colorado district court later reduced this award, holding the city could only collect about $3.5 million owed for the previous three years.

On July 3 of this year, the Colorado Court of Appeals went further than the district court and held Denver could not collect any lodger’s taxes from the OTCs. Judge Anthony J. Navarro, writing for a unanimous three-judge appeals panel, said Denver’s tax only applied to “vendors,” which meant those businesses “who actually furnishe[d] lodging.” The OTCs argued they only served as an intermediary between customers and lodging vendors; they do not provide any lodging themselves. Navarro agreed. At best, he said, the Denver tax ordinance was “ambiguous” on this point, and the law must be “strictly construed” in favor of the OTCs.

Navarro noted courts in Florida, Missouri and Texas held similar hotel taxes did not apply to OTC services. That does not mean such taxes can never apply, however, only that local governments must expressly amend their laws to cover OTC services.

See also: D.C. can collect sales tax on online hotel bookings

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

Virginia joins crowd in demanding sales tax collection

Virginia sales tax collection

Virginia sales tax collection

Amazon begins sales tax collection

Virginia passed a law requiring  collection of sales taxes by large online retailers like Amazon.

Virginia has become the latest state to start requiring large online retailers to begin sales tax collection from Virginia residents. This new law went into effect as of September 1st, 2013. The Virginia state sales tax of 5.3% now applies to out-of-state sellers that maintain a distribution center, warehouse, fulfillment center, office, or similar location in Virginia that facilitates the delivery of tangible personal property.

Amazon for example now needs to collect sales taxes from Virginia residents because it has two large distribution centers in the state. This law does have an exemption for retailers that have less than $1 million a year in revenue.

Federal court okays controversial Colorado sales tax law

Colorado sales tax law

Colorado sales tax law

Colorado sales tax law

Federal court approves CO law to keep track of business’s sales tax transactions online.

A recent federal court of appeals ruling upheld Colorado sales tax law that would require out-of-state vendors to act as agents for the state. Vendors with no physical presence in the state will be either required to collect use tax on behalf of a Colorado-based purchaser or for the vendor to notify the purchaser of sales or use tax owed the state. The vendor would then be required to file annual reports detailing purchaser information. The retailer is effectively required to be a “trustee for any tax collected and …  act as an agent of Colorado. (Colorado Sec. 39-26-204; Reg. 39-26-204.2)

Colorado’s approach to out-of-state sales and use tax collection is somewhat unique and certainly controversial. The reason this bill is controversial is because it requires that business from outside of Colorado report customer information to the Colorado government. Critics wondered if this was an overreach from the state and the matter went to court. The appeals court ruled that this law is okay which sets the stage for Colorado regulators to start using tracking systems to monitor resident’s use tax obligation.

While this state-monitored system is likely to collect far more in use tax than the traditional method of asking residents to self-report tax owed, it will be interesting to see what happens to this law should the Marketplace Fairness Act push its way through congress.

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