Expedia, Inc. v. District of Columbia
120 A.3d 623
D.C.2015Background
- Online travel companies (OTCs) use a merchant model: OTCs charge customers a retail rate, collect payment (net room rate + tax recovery charge + OTC retail margin), forward net rate and tax recovery charge to hotels, and keep the retail margin. Customers pay OTCs directly; hotels rarely receive payment from customers.
- D.C. sales tax statutes impose tax on "vendors" for "the sale or charge for any room ... furnished to transients by any hotel" and tax gross receipts; "sales price" excludes "the amount of reimbursement of tax paid by the purchaser to the vendor under this chapter." Vendors must separately state tax reimbursements on receipts.
- The District sued OTCs (claims back taxes, penalties, interest since 1998), arguing OTCs are vendors and taxable on the full amounts they charged customers (including OTC margins and the so-called tax recovery charge). OTCs argued only hotels furnish rooms (thus are vendors) and OTC margins are not taxable; they also argued separately that tax-recovery amounts excluded from sales price under §47-2001(p)(2)(D).
- Superior Court granted summary judgment to the District on vendor liability but later ruled OTCs could exclude the tax-recovery amounts from their taxable sales price despite failure to state the tax separately; both parties appealed.
- The D.C. Court of Appeals affirmed: (1) OTCs are vendors liable for sales tax on retail margins under §47-2001(n)(1)(C); (2) the tax-reimbursement exclusion (§47-2001(p)(2)(D)) applies even if the OTCs did not state the reimbursement separately; the court rejected the District’s reading that "under this chapter" conditions the exclusion on strict compliance with the separate-statement rule.
Issues
| Issue | District's Argument | OTCs' Argument | Held |
|---|---|---|---|
| Whether OTCs are "vendors" liable for sales tax on amounts charged to customers (including OTC retail margins) under §47-2001(n)(1)(C) | The tax targets the sale/charge to the customer; OTCs effect the sale and thus are vendors taxable on the full amount charged | The taxable activity is the furnishing of rooms (a service provided by hotels); OTCs merely facilitate bookings and should not be taxed on margins | Held for District: statute reasonably read to tax the sale/charge to the purchaser; OTCs are vendors liable on retail margins |
| Whether the sales-price exclusion for "reimbursement of tax paid by the purchaser to the vendor under this chapter" (§47-2001(p)(2)(D)) requires the vendor to separately state the tax reimbursement to qualify | Because OTCs failed to separately state the tax amount, the reimbursement was not collected "under this chapter" and cannot be excluded from sales price; OTCs owe tax on those amounts | The exclusion plainly applies to reimbursements; the separate-statement requirement is not a prerequisite to the exclusion; OTCs may exclude the tax-recovery charge | Held for OTCs: "under this chapter" refers to the chapter (not compliance with every provision); exclusion applies despite OTCs’ failure to separately state the tax |
| Whether equitable defenses (laches, waiver, statute of limitations, equal protection) bar the District’s recovery of back taxes | OTCs: District delayed enforcement and treated hotels as payors; estoppel or statute of limitations should apply | District: sovereign immune from laches; statutory exceptions permit assessment where vendor failed to file returns; no selective enforcement shown | Held for District: nullum tempus and statutory exceptions defeat laches/limitations/waiver/equal-protection defenses |
| Whether administrative regulation (9 DCMR §408.2) or agency interpretation mandates that reimbursement exclusion applies only if tax is separately stated | District: regulation and agency interpretation support conditioning exclusion on separate statement; deference owed | OTCs: regulation does not narrow the statutory exclusion; agency interpretation here not controlling | Held: court rejects District's reading of the regulation and declines to afford decisive deference to an agency position manifested only late in litigation; regulation read as not narrowing §47-2001(p)(2)(D) |
Key Cases Cited
- District of Columbia v. Acme Reporting Co., 530 A.2d 708 (D.C. 1987) (tax statutes ambiguous should be construed in taxpayer's favor, but courts must apply normal tools of statutory construction first)
- Square 345 Ltd. P’ship v. District of Columbia, 927 A.2d 1020 (D.C. 2007) (taxability of hotel-related fees and the focus on the sale/transaction to the transient)
- Hospitality Temps Corp. v. District of Columbia, 926 A.2d 131 (D.C. 2007) (rules on statutory construction and scope of taxable services)
- Auer v. Robbins, 519 U.S. 452 (U.S. 1997) (deference to an agency's interpretation of its own ambiguous regulation unless plainly erroneous)
- Black & Decker Corp. v. United States, 436 F.3d 431 (4th Cir. 2006) (ignoring sham transactions for tax purposes)
- Kleiboemer v. District of Columbia, 458 A.2d 731 (D.C. 1983) (formal compliance with tax code requirements and limits on substantial-compliance doctrines)