Reversing the lower chancery court, the Mississippi Supreme Court ruled that Online Travel Companies (OTCs) Priceline, Cheaptickets, Expedia, Orbitz, Hotels.com, Hotwire and Site59 are not subject to the tax levied against hotels in Mississippi. In reaching its decision, the Court determined that the OTCs are not “hotels” as defined by Mississippi statute.
“[The State’s argument] attempts to sidestep the statutory definition of hotel by emphasizing that the transaction that occurs when a customer reserves accommodations at a hotel through one of the OTCs constitutes a sale. ”
online travel companies
OTCs like Priceline and Expedia are well-known technology companies that operate “websites that enable travelers to research destinations, comparison shop, plan trips, and request reservations from airlines, hotels, and rental car companies.” Unfortunately, OTCs have been drawn into numerous lawsuits across the country initiated by state and local governments for their alleged underpayment of taxes.
litigation, failure & punitive damages
Initiating the Mississippi litigation, the State of Mississippi filed a complaint against the OTCs alleging the OTCs “failed and continued to fail to remit the full and proper amounts of taxes imposed under Mississippi’s Sales Tax Law.”
In its complaint, the State alleged that the OTCs were required to collect and remit state sales tax for each rental of a hotel room to consumers and that the tax base was the gross amount paid and not the net rate, as well as local hotel sales tax. Further, the State alleged that the OTCs had been unlawfully keeping taxes collected and asked for damages including penalties, interest, attorneys’ fees, and punitive damages.
mississippi hotel
As set forth in statute, Mississippi defines “hotel” to include any entities or individuals “engaged in the business of furnishing or providing one or more rooms … and that are known to the trade as such.” Accordingly, the Court had to decide if the OTCs furnished or provided rooms and that they were known to the trade as a hotel.
As part of its analysis, the Court relied on an affidavit from a professor at Cornell University’s School of Hotel Administration to determine that OTCs are not known to the trade as hotels, recognizing that the lower court failed to address the statements in the affidavit.
statute sidestep
In its analysis of the State’s argument, the Court commented that the State attempted to sidestep the statutory definition of a hotel by claiming that the transaction between the OTC and the consumer was a sale based on the State’s definition. However, as stated in the opinion, such determination “miss[es] the mark.”
CourT Conclusion
Based on a clear reading of the statute and thorough analysis, the Court concluded that the OTCs are only alleged to be engaged in the business of hotels, do not fit within the statutory definition of a hotel, and “neither provide nor furnish rooms, … are not physical establishments or places of lodging, and … are not known to the trade as hotels.” Accordingly, the Court reversed the lower court’s decision and held that the OTCs were not subject to the tax levied under the state sales tax laws or the 75 other local hotel taxes.
hit your mark
What had the potential to be a straightforward statutory analysis turned into 10 years of convoluted, procedurally arduous litigation beginning with the filing of the original complaint and ending with the Mississippi Supreme Court’s ruling.
Having a sales tax professional on your team to assist with the appeals process hits the mark. Let us help you navigate the complex world of sales tax ~ it’s what we do best.