No. SCAP-13-0002896, Thursday, October 2, 2014, 10 a.m.

IN THE MATTER OF THE TAX APPEAL OF TRAVELOCITY.COM, LP, Petitioners/Appellees-Cross-Appellants, vs. DIRECTOR OF TAXATION, STATE OF HAWAI`I, Respondent/Appellant-Cross-Appellee.

 The above-captioned case was set for argument on the merits at:

Supreme Court Courtroom
Ali`iolani Hale, 2nd Floor
417 South King Street
Honolulu, HI 96813

Attorneys for Petitioners: 

Paul Alston, Tina L. Colman, Pamela W. Bunn, and Ronald I. Heller

Attorneys for Respondent:

Hugh R. Jones, Deputy Attorney General; Girard D. Lau, Solicitor General; Kimberly Tsumoto Guidry, First Deputy Solicitor General; Warren Price III, Kenneth T. Okamoto, and Robert Marks, Special Deputy Attorneys General

NOTE: Certificate of Recusal, by Associate Justice Simeon R. Acoba, Jr., filed 12/11/13.

NOTE: Order assigning Circuit Court Judge Randal K.O. Lee, in place of Acoba, J., recused, filed 12/16/13.

NOTE: Order granting Application for Transfer, filed 12/24/13.

COURT: MER, C.J.; PAN, SSM, & RWP, JJ.; and Circuit Court Judge Lee in place of Acoba, J., recused.

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Brief Description:

In January and February of 2011, Respondent/Appellant-Cross-Appellee Director of Taxation, State of Hawai`i (Director) issued retroactive assessments for a ten-year period for the General Excise Tax (GET) and the Transient Accommodation Tax (TAT) on the operations of Petitioners/Appellees-Cross-Appellants: Expedia, Inc.; Hotels.com, L.P.; Hotwire, Inc.; Travelocity.com LP; Site59.com, LLC; Orbitz, LLC; Trip Network, Inc. (d/b/a Cheaptickets.com); Internetwork Publishing Corp. (d/b/a Lodging.com); priceline.com, Incorporated; and Travelweb LLC (Online Travel Companies).

The assessments, which were revised and reassessed in June 2012, included penalties and interest. Including additional accrued interest, the total GET assessment was determined by the Director to be approximately $247 million as of May 8, 2012, based on an amount stipulated by the parties in the event that tax liability was established. The total TAT assessment was reported by the Director to be approximately $430 million. The Online Travel Companies timely appealed these assessments to the Tax Appeal Court (Tax Court). The Tax Court issued a Final Judgment Disposing of All Issues and Claims of All Parties on August 15, 2013, affirming the assessment of the GET and rejecting the TAT assessment.

The Director timely appealed the TAT decision of the Tax Court to the Intermediate Court of Appeals (ICA). The Online Travel Companies timely filed a notice of cross-appeal to the ICA of the Tax Court’s GET decision. Both the Director and the Online Travel Companies filed applications for transfer of the appeal and the cross-appeal from the ICA to this court, which this court granted on December 24, 2013.

In regards to the GET, the Online Travel Companies argue that the GET only applies to revenue-generating activities performed in the State of Hawai`i, their activities do not take place in the state, and their services are not used or consumed in Hawai`i. The Director responds that the Online Travel Companies are doing business in the state and are thus subject to the GET. If liability under the GET is upheld, the Online Travel Companies maintain that a statutory apportionment provision pertaining to the GET would apply, substantially reducing their liability. The Director counters that the apportionment provision is inapplicable to the Online Travel Companies.

In regards to the TAT, the Director contends that the Online Travel Companies function as “operators” as defined by statute and are thus subject to the tax. The Director further maintains that an apportionment provision pertaining to the TAT is inapplicable to the Online Travel Companies. The Online Travel Companies dispute the arguments of the Director.

In regards to both taxes, the Online Travel Companies argue that if they are subject to tax liability, the imposition of penalties and interests would be in error. The Director disagrees. Additionally, the Online Travel Companies contend that as to both taxing regimes, the applicable statutes must be construed in their favor.