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Hawaii AG announces $70 million order against online travel companies

By Bryan Cohen | Mar 20, 2013

HONOLULU (Legal Newsline) - Hawaii Attorney General David Louie has announced that multiple online travel companies were ordered to pay the state $70 million in penalties on unpaid general excise taxes.

Tax Appeal Court Judge Gary Chang granted the state of Hawaii's motion for summary judgment on Wednesday, finding that the OTCs sales of Hawaiian hotel rooms over the internet and otherwise require state tax penalties for failure to file Hawaii General Excise Tax returns or pay the tax over a 10-year period.

On January 11, Chang granted summary judgment in favor of the state against OTCs, including Priceline, Travelocity, Orbitz, Hotwire, Hotels.com and Expedia. Chang ruled that the GET applied to the sales of Hawaii hotel rooms by OTCs. The amount of unpaid taxes owed is approximately $158 million, including interest covering the period from 2000 through 2011.

In addition to the unpaid taxes and penalties, the court's ruling could lead to future GET collections of approximately $20 million per year.

"The OTCs did not produce any advice from legal counsel or accounting professionals advising that their position was reasonable and that they did not have to pay the state's general excise taxes," Louie said. "The burden is on taxpayers to demonstrate that they had reasonable cause not to file or pay the taxes, and we believe the court correctly found that the OTCs failed to prove their case."

On March 7, the state appealed a ruling that the OTCs did not have to pay Hawaii's transient accommodations tax, a tax on the gross receipts of any operator of transient accommodations. The state considers the OTCs to be operators because they furnish transient accommodations.

Hawaii is seeking to collect approximately $400 million in unpaid TAT and, if the appeal is successful, the state could collect approximately $40 million in additional TAT in the future.

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