354 P.3d 631
Mont.2015Background
- OTCs (Hotels.com, Orbitz, Expedia, etc.) operate under a Merchant Model and collect wholesale rates plus OTC fees from customers; OTCs currently remit tax on wholesale rates to hotels/agencies but not on OTC fees themselves.
- Department sought to tax OTC fees under the Lodging Facility Use Tax (LFUT) and the Sales Tax on accommodations and campgrounds; OTCs argued they are not taxpayers and that LFUT/Sales Tax do not apply to OTC fees.
- District Court granted summary judgment for OTCs, ruling LFUT and Sales Tax do not apply to OTC fees; Department appealed.
- Statutes at issue: LFUT imposes a 4% tax on an accommodation charge paid by the user and requires facility owners/operators to collect; Sales Tax imposes a 3% tax on accommodations and campgrounds and 4% on base rental charges for rental vehicles, collected from purchasers by sellers.
- Court heard arguments on whether LFUT and Sales Tax can be applied to OTC fees, and whether to apply the statutes coextensively or in pari materia; the decision addresses retroactivity of applying the Sales Tax to OTC fees.
- The Department asserts OTCs are liable for taxes on OTC fees under the LFUT and Sales Tax; OTCs contend they are not owners/operators and that OTC fees are not subject to these taxes.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| LFUT applicable to OTC fees? | Department argues OTCs are taxable as owners/operators. | OTCs are not owners/operators of facilities. | LFUT does not apply to OTC fees. |
| Sales Tax on accommodations/campgrounds applies to OTC fees? | Department says OTC fees are part of the sales price under Sales Tax. | OTCs not buyers/sellers for these fees; ambiguous term usage. | Sales Tax applies to OTC fees. |
| Sales Tax on rental vehicles applies to OTC fees? | OTCs collect fees as part of services; must tax OTC fees. | Base rental charge interpretation excludes OTC fees. | Base rental charge read as synonymous with sales price; OTC fees taxed. |
| Retroactivity of ruling? | Should apply prospectively to avoid back taxes. | Rules allow back taxes once debt is due; retroactive application is appropriate. | Tax liability retroactive to November 8, 2010. |
Key Cases Cited
- Pitt Cnty. v. Hotels.Com, LP, 553 F.3d 308 (4th Cir. 2009) (definition of operator; how OTCs fit (operator/owner))
- City of Branson v. Hotels.com, LP, 396 S.W.3d 378 (Mo. Ct. App. 2013) (operational/ownership concepts in tax context)
- City of Atlanta v. Hotels.com, 710 S.E.2d 766 (Ga. 2011) (retail rent taxation by OTCs surrounding OTA fees)
- Cherry Lane Farms v. Carter, 153 Mont. 240 (1969) (plain-language interpretive rule; resolve reasonable doubt in taxpayer's favor)
- In re Kesl’s Estate, 117 Mont. 377 (1945) (statutory construction principles applied to tax statutes)