Travelscape, LLC v. South Carolina Department of Revenue
391 S.C. 89
| S.C. | 2011Background
- Travelscape, LLC, an online travel intermediary, contracts with hotels to offer discounted rooms via Expedia; it adds a facilitation fee, service fee, and tax recovery charge to the net room rate; the hotel collects net rate and sales tax from Travelscape, while Travelscape keeps the two fees and does not pay tax on them.
- The Department of Revenue audited Travelscape for July 1, 2001–June 30, 2006, assessing seven percent sales tax on the gross proceeds derived from furnishing hotel accommodations and imposing penalties.
- The Administrative Law Court held Travelscape owes the tax but not the penalties; Travelscape appealed, challenging whether 12-36-920 imposes the Accommodations Tax on its fees.
- The issue framed is the proper application of the Accommodations Tax under §12-36-920, including whether service fees are gross proceeds and whether Travelscape is within the State and thus subject to nexus requirements under the Dormant Commerce Clause.
- This Court applied the standard of review in §1-23-610(B) and affirmed the ALC, holding that (a) Travelscape’s service fees are taxable gross proceeds, (b) Travelscape is engaged in furnishing accommodations in South Carolina, and (c) the Dormant Commerce Clause challenge fails.
- Justice Pleicones dissented, arguing that the statute should not reach Travelscape’s separate service fee and would reverse the ALC on statutory construction grounds.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the fee structure fall under gross proceeds subject to §12-36-920(A)? | Travelscape argues fees are derived from services, not room charges. | The fees are included in gross proceeds as defined by gross proceeds of sale. | Yes; fees are gross proceeds and taxable. |
| Is Travelscape engaged in furnishing accommodations under §12-36-920(E)? | Travelscape is not physically providing accommodations. | Engaged in the business of furnishing accommodations through reservation services. | Yes; Travelscape is engaged in furnishing accommodations. |
| Does Travelscape have substantial nexus under Dormant Commerce Clause? | No substantial nexus because operations occur outside SC. | Physical presence and in-state contracts with SC hotels establish nexus. | Yes; nexus proven; tax constitutional. |
Key Cases Cited
- Quill Corp. v. North Dakota, 504 U.S. 298 (1992) (negative impact of Dormant Commerce Clause; physical presence not required for nexus test)
- National Bellas Hess, Inc. v. Department of Revenue, 386 U.S. 753 (1967) (use tax nexus requires physical presence)
- Tyler Pipe Indus. v. Washington State Dep't of Revenue, 483 U.S. 232 (1987) (physical presence by in-state services supporting market)
- Scripto, Inc. v. Carson, 362 U.S. 207 (1960) (in-state agents' activities establish nexus)
- International Harvester Co. v. Wasson, 281 S.C. 458 (1984) (SC nexus interpretation in-state activities context)
- Okla. Tax Comm'n v. Jefferson Lines, Inc., 514 U.S. 175 (1995) (externally consistent tax allowed for interstate activity)