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Oral Argument Before the Hawaii Supreme Court–SCAP-17-0000367

No. SCAP-17-0000367 Thursday, April 5, 2018, 10 a.m.

In the Matter of the Tax Appeal of PRICELINE.COM, INC., et al., Taxpayers-Appellants-Appellees/Cross-Appellants, vs. DIRECTOR OF TAXATION, STATE OF HAWAIʻI, Appellee-Appellant/Cross-Appellee.

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

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

Attorneys for Appellee-Appellant/Cross-Appellee Director of Taxation, State of Hawaii:

Cynthia M. Johiro and Hugh R. Jones, Deputy Attorneys General; Warren Price III, Kenneth T. Okamoto, and Robert A. Marks, Special Deputy Attorneys General;

Attorneys for Taxpayers-Appellants-Appellees/Cross-Appellants Expedia Inc., Hotwire, Inc., Orbitz, LLC, Trip Network, Inc. (dba, and, Inc.:

Paul Alston, Pamela Bunn, and Ronald I. Heller

NOTE: Order granting Application for Transfer, filed 08/11/17.


[  Listen to the entire audio recording in mp3 format ]

Brief Description: The case involves 29 consolidated tax appeals challenging assessments by the Director of Taxation (Director) with regard to five online travel companies’ (OTCs) merchant rental car transactions from 2000-2013.

The OTCs engage in two types of merchant rental car transactions: (1) “stand alone” transactions where the only travel item the customer purchases from the OTC is a car rental; and (2) “package” transactions in which the customer purchases a car rental along with at least one other travel-related item such as an airline ticket or hotel reservation.

Around December 9, 2013, the Director assessed each OTC for General Excise Tax (GET), penalties, and interest on the gross amounts the OTCs collected from its customers in Hawai#i who engaged in merchant rental car transactions during the period 2000 through 2012 (“2000-2012 Car Assessments”). Around July 18, 2014, the Director similarly assessed each OTC for the period January 1, 2013 through December 31, 2013 (“2013 Car Assessments”).

The 2000-2012 Car Assessments and the 2013 Car Assessments were appealed to the Tax Court and consolidated. The parties filed cross-motions for summary judgment.

The Tax Court rejected the OTCs’ res judicata argument–that because the OTCs had already received “final” GET assessments for 2000 to 2011 and litigated those assessments to final judgment, the Director was barred/estopped from bringing additional assessments for the same type of tax for those tax years.

With respect to the OTCs’ liability for GET on the merchant rental car transactions, the Tax Court ruled that, for “package” transactions, the OTCs are required to pay GET only on the portion of the proceeds they retain because the car rentals qualify as “transportation included in a tour package” under the GET apportioning statute, HRS § 237-18(f).

The Tax Court ruled, however, that the OTCs are required to pay GET on the total proceeds received from a traveler in a “stand alone” transaction, including the portion that is collected for, and distributed to, the car-rental company.

In the appeal, the Director raises the following point of error:

• Whether the Tax Court erred by failing to order that the OTCs owe GET on the gross proceeds of their merchant model transactions involving car rentals sold as part of a travel package in the State of Hawaii.

In the cross-appeal, the OTCs raise the following points of error:
• Whether the Tax Court erred by concluding that the challenged assessments for the period 2000-2011 were not barred by res judicata, where the Director had previously made and collected final assessments of GET for the same tax years (2000-2011) from the same taxpayers and those assessments were adjudicated to final judgment?

• Whether the Tax Court erred by declining to apply the GET apportioning statute (HRS § 237-18(f)) to stand alone merchant rental car transactions, thereby imposing GET liability on the OTCs not only on the amounts they actually retained, but also on the amounts they remitted to the car-rental suppliers on which the suppliers paid GET?