The Indiana Tax Court has clarified the tax liability of online travel companies as it pertains to the Indiana Sales and Innkeeper’s Tax. Orbitz v. Indiana Dep’t of State Rev., 2016 Ind. Tax LEXIS 51 (December 20, 2016). Orbitz, an online travel company, challenged the assessment of the Indiana Department of Revenue. Orbitz argued that it was only liable for taxation for the wholesale rate of the Indiana hotel rooms it booked online. The Indiana Department of Revenue argued that Orbitz was responsible for tax on the retail rate of Indiana hotel rooms. The Court held for Orbitz.
Orbitz contracted with a group of hotels in Indiana to advertise and book a specified number of rooms in each hotel. Orbitz agreed to a wholesale rate with these hotels where they would pay the hotel the wholesale rate for any pre-paid reservations. In exchange, Orbitz would charge the customers for the pre-paid amount, keep the difference between the wholesale rate and the retail rate, collect tax on the rooms, remit tax along with the wholesale rate to the hotel and would advertise the hotels and their rooms on Orbitz’s website. Orbitz, for the tax years in question, collected and remitted the Indiana Sales and Innkeeper’s Tax for the amount of the wholesale rate of the rooms. The issue in this case was whether Orbitz was a retail merchant and, thus, liable for the Indiana Sales and Innkeeper’s Tax. If liable, the second issue was whether Orbitz was responsible for the retail or wholesale rate of the rooms.
The Indiana Sales and Innkeeper’s Tax is imposed upon retail merchants who rent or furnish rooms to others for consideration for a period less than thirty days. See I.C. § 6-2.5-4-4(a). The Indiana Tax Court determined that Orbitz was not a retail merchant as defined by the Indiana Code. Because the hotel owners had exclusive possession and control of the rooms at all times, they alone, and not Orbitz, were able to transfer that possession and control, as is required to be a retail merchant. Since the Tax Court determined that Orbitz was not a retail merchant, they were not liable for Indiana Sales or Innkeeper’s Tax, and all additional taxes assessed by the Department of Revenue were the responsibility of the hotels.
Hotels and similar businesses must be aware of the Indiana Tax Court’s position when negotiating contracts with online travel companies. If the online travel company is collecting tax on behalf of the hotel, the hotels will need to ensure that the appropriate amount is being collected or the hotels, themselves, will be liable for the difference.