​States Divided on Online Travel Sales Tax

May 26, 2017 | Bruce Nelson

Bruce Nelson | Tax Director

Bruce has more than 30 years of accounting experience and works with multistate public and privately owned businesses, helping lead the State and Local Tax (SALT) practice at EKS&H. He has extensive expertise...

Go to Bruce's bio page »
Implications for online transactions raise numerous questions with regard to the appropriate state tax base for sales, and perhaps no industry could be more impacted by this than hospitality. 

Internet travel companies such as,,,, and book the overwhelming majority of online room rentals. The market for these online travel companies (OTC) doesn’t appear to show signs of slowing down anytime soon, with the largest share of online sales being conducted in North America. The U.S. generated around $168 billion through mobile and desktop travel sales in 2015, a figure forecasted to grow annually until 2019. At the same time, this growth has cities and states reeling with estimating losses of anywhere from $276 million to $396 million a year in hotel tax revenue due to OTCs. 

Sales by these OTCs raise a host of issues, including:
  • Who is selling the room, the hotel, or the OTC?
  • Is the OTC reselling the room? If so, can they give a resale exemption number to the hotel?
  • Is the OTC acting as an agent for the seller?
  • Is the sale subject to both sales tax and lodging taxes?
  • Who is responsible for remitting the tax?
  • Does the OTC have nexus with the jurisdiction in which the hotel is located?

Who Gets Taxed?

Currently, the biggest issues seem to concern the appropriate tax base and who is required to remit the tax. In short, is the tax due on the amount the OTC pays the hotel? Or is the tax due on the amount the OTC charges the customer?

It is no surprise that the states believe that the appropriate taxable base is the price charged by the OTC to the purchaser. The OTCs argue, however, that the charge to the consumer is a service fee and nontaxable. In fact, the OTC maintains that the state and local governments are getting all the tax to which they are entitled when the hotel operator remits the tax on the net rate charged to the OTCs. 

The Interactive Travel Services Association (ITSA), a lobbyist group for the OTCs, point out that the OTCs do not receive commissions from hotel operators, buy blocks of rooms, resell hotel rooms, have an inventory of hotel rooms, or purchase or sell hotel rooms. Instead, they argue that they have created a new intermediary marketplace and service through which customers can shop for and book rooms with hotel operators, airlines, car rentals, tourist destinations, etc.

An Ongoing Issue

There have been more than 70 cases in more than 25 states on this issue, and many are still at the hearing, appeal, or trial court level. While Denver recently won in its litigation against OTCs, many other jurisdictions have lost. 

Some states, including Arizona, Massachusetts, and New York, agreed that thee OTCs are not hotel operators and have issued determinations to that effect. But other states, like New Hampshire, reached the opposite conclusion. Taxpayers in cities including Orange County and Anaheim, California, and Houston and Orange, Texas, the state of Montana, and others have experienced wins.

Court Opinions Vary 

While numerous cities and states including Wyoming and Florida won against OTCs, others were unsuccessful. In Hawaii, the decision was split: the Tax Appeal Court held that OTCs were subject to the state’s gross receipts tax but not the Transient Accommodations Tax. The Hawaii Supreme Court upheld the tax court’s decision, agreeing with the lower court that the hotels are not “operators” under the Transient Accommodations Tax.

In addition to the Colorado Supreme Court in Expedia, four other state supreme courts addressed the same issue, again with mixed results. The Georgia and South Carolina supreme courts ruled in favor of the government, and the Alabama and Missouri supreme courts ruled in favor of the OTC. 

While most of the cases were in state courts, some showed up in United States district courts. For example, the U.S. District Court for the Western District of Texas San Antonio Division, in a class action suit brought by 172 Texas cities against 11 OTCs, held that the OTCs were required to remit hotel occupancy taxes on the total retail amount charged to the customer rather than the amount received by the hotels from the OTC. 

On the other hand, the U.S. District Court for the District of New Mexico ruled that OTCs were not vendors of lodging and thus not subject to lodging tax. The U.S. Court of Appeals for the Sixth Circuit also ruled that OTCs are not “vendors” or hotel operators for purposes of the local occupancy taxes. 

The issue continues to be in flux so affected OTC technology companies as well as hotel owners, operators, and others in the hospitality industry must stay tuned. 

The EKS&H state and local tax (SALT) group takes the complexity out of SALT issues for businesses of all sizes and in a wide variety of industries. We consider real-time developments and a wide variety of factors that may be subject to nuances in SALT codes. From there, we're able to make strategic recommendations to reduce your risk and potentially decrease your tax burden.

To learn more, please contact Bruce Nelson at, or call us today at 303-740-9400.