Orbitz, LLC v. Indiana Department of State Revenue
66 N.E.3d 1012
| Ind. T.C. | 2016Background
- Orbitz, an online travel intermediary using the merchant model, facilitated pre-paid hotel reservations for Indiana hotels (2004–2006) under Hotel Listing Agreements.
- Under those agreements hotels set nonpublic wholesale rates, Orbitz added a facilitation fee, charged the customer the combined (retail) amount at checkout, and remitted the wholesale and a tax recovery charge to the hotels after stay completion.
- Orbitz was the merchant of record for payments; hotels retained exclusive possession and transferred the room to the guest at check-in.
- Indiana Department of Revenue assessed Orbitz for additional sales and county innkeeper’s taxes, asserting tax should be calculated on the retail (total) rate rather than the wholesale rate used by Orbitz.
- Orbitz protested and filed suit after administrative denial; both parties moved for summary judgment. The court found no genuine factual disputes.
Issues
| Issue | Plaintiff's Argument (Orbitz) | Defendant's Argument (Department) | Held |
|---|---|---|---|
| Was Orbitz a "retail merchant" under I.C. § 6-2.5-4-4? | Orbitz argued it was not: hotels retained possession/control and delivered rooms at check-in, so Orbitz did not rent/furnish rooms. | Department argued Hotel Listing Agreements conveyed Orbitz the right to market/sell/rent rooms, constituting transfer of possession or control. | Court held Orbitz was not a retail merchant as a matter of law; hotels—who transferred possession—were the retail merchants. |
| Was the tax base the wholesale or retail rate? | Orbitz argued tax should be measured by the wholesale rate, per contract and because the transactions were not unitary between Orbitz and hotels. | Department argued the customer-facing total (retail) was a single unitary transaction and Orbitz’s facilitation fee was part of the taxable base. | Court did not need to reach full unitary-analysis for Orbitz because Orbitz is not a retail merchant; liability (if any) rests with the hotels. |
| Could Department assess innkeeper’s taxes against Orbitz as collected? | Orbitz asserted it properly collected taxes based on wholesale rate and was not liable for additional assessments. | Department sought to hold Orbitz liable for undercollection based on retail rate. | Court held Department erred in assessing sales and innkeeper’s taxes against Orbitz on the retail rate; hotels, not Orbitz, are liable. |
| Effect of statutory unitary-transaction provision (I.C. § 6-2.5-4-4(b)) | Orbitz contended unitary rules did not make its out-of-state facilitation services taxable as part of hotel rentals. | Department relied on unitary-transaction statute to include facilitation fee in taxable receipts. | Court observed that because Orbitz is not the retail merchant, the unitary presumption does not create Orbitz liability; inquiry for tax base shifts to hotels. |
Key Cases Cited
- 2625 Building Corp. v. Deutsch, 385 N.E.2d 1189 (Ind. Ct. App. 1979) (prepaid hotel reservations create executory obligation; possession/control remains with hotel until check-in)
- Cowden & Sons Trucking, Inc. v. Indiana Dep’t of State Revenue, 575 N.E.2d 718 (Ind. Tax Ct. 1991) (unitary transaction concept limited to same merchant providing both service and tangible property)
- Greensburg Motel Assocs., L.P. v. Indiana Dep’t of State Revenue, 629 N.E.2d 1302 (Ind. Tax Ct. 1994) (rental of hotel rooms treated as sale of tangible personal property for sales tax purposes)
- Howland v. Indiana Dep’t of State Revenue, 790 N.E.2d 627 (Ind. Tax Ct. 2003) (services performed before transfer of tangible property are inextricable and taxable)