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Taxes on online travel companies: The fight against government

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In our recent article, Taxes On Online Travel Companies In Hawaii, eturbonews.com (May 14, 2015) we discussed the case of Matter of the Tax Appeal of Travelocity.Com, L.P. v. Director of Taxation, 2015 WL 1207380 (Hawaii Sup. 2015) wherein the Hawaii Supreme Court held that Hawaii’s General Excise Tax (GET) should be “imposed on the travel agency and hotel operator on the respective portion of the gross income allocated or distributed to each” regarding the sale of hotel rooms. In essence, the mark-up between what Online Travel Companies (OTCs) pay for hotel rooms and what they sell these rooms for to consumers is to be taxed. In this article we discuss a similar case, Alachua County v. Expedia, Inc., 2015 WL 3618004 (Fla. Sup. 2015), but with a different result, in that the Florida Supreme Court held that Florida’s Tourist Development Tax (TDT) only applies to the payment which the hotel receives from the OTC for a room and not the additional OTC mark-up which the consumer pays.

Travel Law Update

Philippine Ferry Disasters

In Philippines deadly ferry accident with 176 tourists and local passengers on board, eturbonews.com (7/2/2015) it was noted that “Kim Nirvana, a ferry heading from the central city of Ormoc to the island of Manotes in the Philippines, capsized with 173 tourists and passengers on board, killing at least 16 according to the Coast Guard stationed in Ormac”. And in Antonio, Whatever Happened to…? Justice eludes ‘Princess of the Stars’ victims, newsinfo.inquirer.net (6/23/2015) it was noted that “The struggle for justice for hundreds of victims of the ill-fated MV Princess of the Stars is far from over. On June 21, 2008, the 23,824-ton ferry sailed from Manila…on a 22-hour trip to Cebu City, carrying 851 passengers …when it ran into an approaching typhoon and keeled over. Only 32 survived the sinking, one of the Philippine’s worst sea tragedies. The remains of 300 were later recovered, but another 400 remained missing…A total of 135 cases have been lodged in Manila and Cebu by families of the victims against Sulpicio Lines, seeking damages worth P1.04 billion for negligence and breach of contract of carriage…But no one has been held criminally liable for the disaster”.

Uber Suspends UberPop In France

In Rubin & Breeden, Uber Suspends UberPop in France and Awaits Court Ruling, nytimes.com (7/3/2015) it was noted that “Uber, the American ride-hailing company, agreed to suspend its lowest cost service in France starting Friday evening, bowing to strikes last week in which taxi drivers blocked roads, burned tires and in some cases attacked drivers who they thought were working for Uber…Taxi drivers in France must acquire an expensive license-costing as much as $270,000 in Paris-and have felt betrayed that unlicensed UberPop drivers are allowed to operate freely without having to bear a similar burden”.

Uber Drivers Threatened In South Africa

In Uber drivers threatened by taxi drivers under gunpoint, eturbonews.com (7/6/2015) it was noted that “now in South Africa internet taxi firm Uber was providing security for its drivers…after verbal threats from other taxi operators in the latest outbreak of friction to hit the fast-growing company”.

Uber Challenged By Privacy Group

In Singer & Isaac, Uber Data Collection Changes Should Be Barred, Privacy Group Urges, nytimes.com (6/22/2015) it was noted that “A leading privacy group wants the Federal Trade Commission to prohibit Uber from instituting changes to its privacy policy that the group says will allow the ride-hailing app to collect more detailed data about customers’ whereabouts and use their contact lists to send their friends promotional pitches…Uber on Monday said in a statement that there was ‘no basis for this complaint’. It added: ‘We care deeply about the privacy of our riders and driver-partners, and have significantly streamlined our privacy statements in order to improve readability and transparency’…Uber’s reputation is still recovering from public censure last year after allegations surfaced that company employees had mishandled trip data about individual consumers to track their locations, and inappropriately shared an internal tool-colloquially known as ‘God view’-that showed users taking trips in real time”.

Uber Overtaking Taxis

In Mouawad, Business Travelers Want to Be Left to Their Own Devices, nytimes.com (5/6/2015) it was stated that “According to one estimate by Certify, an expense management company, Uber has nearly overtaken taxis in major American cities in terms of expensed business travel. Uber rides accounted for 47 percent of all expensed rides as of this March, up from just 14 percent in January 2014. The share spent on taxis, limousines and hotel shuttles dropped to 52 percent, from 86 percent, in the same period. Lyft, a rival service, accounted for 1 percent of ground transportation expenses. ‘It’s exciting-and somewhat shocking-to see their growth and how they’ve captured corporate spend’, said Bob Neveu, chief executive of Certify, of services like Uber and Lyft. ‘They have solved the whole ground transportation piece’”.

Uber And The Lanham Act

In Ryan, Uber Runs NYC Taxi Cos. Off The Road, Suit Says, law360.com (5/27/2015) it was noted that “Uber Technologies LLC unfairly dominates the New York City ground transportation market by misleading consumers about its lax driver safety screening, ignoring local regulators and operating as an unlicensed taxi service, two black car companies argued in a suit removed Friday to New York federal court. Black car transportation services XYZ Two Way Radio Service Inc. And Elite Limousine Plus, Inc. told a New York state court in an April 15 complaint that Uber has a habit of ‘invading local markets’ and ignoring the safety and regulatory guidelines that other transportation companies are legally obliged to follow. Uber subsequently removed the suit to federal court, saying that because it argues violations of the Lanham Act, the state court lacks jurisdiction”.

Uber’s Last Frontier

In Tierney, Uber Closes In on Its Last Frontier: Airports, nytimes.com (5/26/2015) it was noted that “Mr. Smith works for Uber, the ride-hailing service that has helped upend the taxi business in many corners of the world, with one exception: airports. At major airports in cities from Chicago to Las Vegas to Los Angeles, drivers for ride-hailing services are barred from picking up passengers. And at those airports that do allow them, there is a hodgepodge of regulations…Late last year, San Francisco International became among the first to allow Uber…and Lyft-and other airports are following suit. (Deals are struck with individual ride-hailing firms of each airport’s choosing)…At La Guardia and Kennedy International Airport in New York, drivers for UberX, Uber’s lower-cost service, can pick up passengers if they are licensed by the Taxi & Limousine Commission. It is the only market where all drivers are required to obtain a taxi license and show proof of insurance. Still, though, most airports, according to the Airport Ground Transportation Association, do not allow UberX drivers to pick up passengers…Uber maintains that its fleet of cars creates more efficient traffic flow-noting that because it can ferry passengers to and from airports, ‘deadhead trips’ that involve no riders in one direction are avoided”.

The Florida Tax Case

In the Florida tax case, “Alachua County, other counties and certain county tax collectors…filed a joint declaratory action…against the OTCs. The Counties argued that the TDT applied to the difference between the total monetary amounts the OTCs’ customers paid to them, and the lesser monetary amount the OTCs remit to the hotels. This difference is known as the markup charges. The Counties further argued that the customers, not the OTCs, are the persons who exercise the privilege that is taxable under the TDT”.

The Question Reviewed

“We rephrase the certified question as follows: Are the total monetary amounts that OTCs charge their customers to secure reservations for transient accommodation rentals in Florida counties subject to taxation under (the TDT)?…In answering the…question we examined the TDT’s plain language…we determined that the TDT contains no language, as the Counties asset, that clearly directs that it should be applied to the markup charges and service fees associated with merchant model transactions for hotel room rentals. Moreover, despite the operation of a given business model transaction, the monetary amount the hotels require for occupancy is the sole determinant for the charges that are taxable under the TDT”.

Relevant Business Models

“[T]he Counties argue that, under so-called merchant model transactions, the full amount of charges the OTCs require of their customers for Florida hotel room reservations is subject to taxation under the TDT. We disagree. The record before us shows that the amount the OTCs charge their customers for facilitating Florida hotel room reservations is fully negotiated between the OTC and hotel. Thus, under merchant model transactions, the markup portion of the total charges reflects the agreed-upon remuneration for the services an OTC provides by way of its Internet-based website. Conversely, under the agency model, travel companies facilitate hotel room reservations in a similar fashion as do the OTCs under merchant model transactions. However, after a hotel room is reserved, the customer makes all payments for the room rental directly to the hotel. In turn, the hotel remits to its travel company partners a negotiated monetary commission based on the hotel room rentals the travel company facilitate. Both business models therefore, achieve the same end-capturing the monetary costs hotels require for occupancy of transient lodging.

Who Receives The Consumer’s Payment?

“The Counties argue that the taxable amount under the TDT is contingent upon which business receives the payment associated with the confirmed hotel reservation. We reject this argument because it presumes that a person other than the hotel exercises the taxable privilege. Instead, we conclude that the statute concerns only the amount of funds a hotel requires for a customer to occupy the hotel room it rents on a transient basis. Thus, it is irrelevant to the taxation issue at hand which actors are involved and what roles they play in transactions for facilitating hotel room reservations. Under either transaction model, the tax required by the TDT will be based solely upon the transient rental rate of a room, that is, the price of possession established by the hotel for which it is in the business of selling”.

What Does The Legislature Want?

“Finally, as the OTCs…point out, when in the past several sessions of the Legislature, the markup charges taxation issue has been raised as proposed legislation, the Legislature has repeatedly declined to revise…TDT to require such taxation. Accordingly, we hold that the Legislature’s presumptive awareness reflects the Legislature’s willingness to maintain the status quo of not subjecting the OTCs markup charges to the transient rental taxes”.


As noted in Ampel, Score One for Expedia, Hotels.com, Orbitz and Online Travel Companies, dailybusiessrevew.com (6/11/2015) “The Florida Supreme Court…sided 5-2 with online travel companies in their fight against government agencies on hotel room taxes…The case is one of many similar suits filed across the country in recent years”. Stay tuned.

Source: Hon. Thomas A. Dickerson

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