Lead Opinion
In thе District of Columbia, sales tax is governed by D.C.Code §§ 47-2001 to 47-2027.
Having found that the OTCs are liable for the District of Columbia sales tax, we confront a second issue concerning the extent of that tax liability. The District argues that the OTCs are liable for tax on the entire amount they collect from their customers, including the “sales tax reimbursement” amount that the OTCs have been passing on to the hotels, which the hotels, in turn, remit to the District as the sales tax due on the amount the hotels earn on the deal. In reply, the OTCs argue that this “sales tax reimbursement” amount should be excluded from the taxable “sales price” by the plain text of D.C.Code § 47-2001(p)(2)(D). The “sales price” is defined as the “total amount paid” to a “vendor” by a “purchaser” for the taxable service, but — as the District concedes — expressly excludes “[t]he amount of reimbursement of tax paid by the purchaser to the vendor under this chapter!.]” D.C.Code § 47-2001(p)(2)(D). Nevertheless, the District claims that the OTCs are not entitled to the benefit of the § 47-2001(p)(2)(D) exclusion because the OTCs have been failing to state the tax reimbursement amounts separately when collecting such amounts from their customers, and the separate statement is one of the chapter’s requirements. Therefore, the District contends, those reimbursement amounts have not been properly collected “under this chapter” and are not entitled to the benefit of the § 47-2001(p)(2)(D) exclusion. The Superior Court rejected that reading of the statute and granted summary judgment to the OTCs because, while the statute does require tax reimbursement amounts to be stated separately, it does not make the separate statement a prerequisite to being a “reimbursement of tax paid by the purchaser to the vendor under this chapter!.]” Put differently, the Superior Court read § 47-2001(p)(2)(D) as simply excluding the tax reimbursement amount from the sales price, rather than creating an exclusion that vendors “earn” when they state the sales tax reimbursement amount separately and “forfeit” when they do not. While requiring a vendor to forfeit the § 47-2001(p)(2)(D) exclusion when the vendor fails to state the tax reimbursement amount separately would be a permissible statutory scheme, the Superior Court was not convinced that that is the scheme Congress had in mind, and neither are we. We reject the District’s invitation to read such a forfeiture into the words “under this chapter,” and affirm the trial court’s grant of summary judgment to the OTCs with respect to the § 47-2001(p)(2)(D) exclusion.
I. The Facts
Appellant OTCs operate websites that allow customers to search for, compare, book, and pay for travel reservations. In that respect, the OTCs serve as intermediaries between customers and a host of travel service providers, including car rental companies, airlines, and — importantly for this appeal — hotels. The OTCs’ primary business model for the sale of hotel rooms is known as the merchant model: a uniform, nationwide model that operates the same way, in all relevant respects, for all OTCs and in all jurisdictions, including in the District of Columbia. The OTCs have been using the merchant model to book hotel stays in the District since at least the late 1990s.
Under the merchant model, the OTCs contract with hotels for the right to sell hotel rooms to online custоmers at a “retail rate,” while paying the hotels that actually furnish the rooms some lower, negotiated “net rate.” In a typical merchant model transaction, a customer uses an OTC’s website to search for and select
When charging the customer’s credit card, the OTC collects an amount that consists of the net room rate that it will later forward to the hotel, a tax recovery charge, and a retail margin that the OTC keeps as profit. The tax recovery charge — whiсh represents the sales tax due on the net room rate received by the hotel — is also forwarded to the hotel, which then remits it to the District. The District thus receives the sales tax due on the net rate paid to the hotel, but does not receive sales tax on the OTCs’ retail margins — that is, on the difference between (1) the total charges that the customer pays to the OTC and (2) the lower, net rate that the OTC forwards to the hotel.
When it charges the customer, the OTC does not isolate the “sales tax” as a separate amount, but instead calls the sales tax a “tax recovery charge,” which it combines with a “service fee.” As a result, the customer does not know how much sales tax has been paid on the transaction.
On March 22, 2011, the District brought suit to recover what it viewed as unpaid back sales taxes — those owed on the OTCs’ retail margins — as well as penalties and interest related to the OTCs’ merchant model sales in the District since 1998. On September 24, 2012, the Superi- or Court granted partial summary judgment to the District on the issue of the OTCs’ basic tax liability, holding that the District’s “gross sales tax law has applied to Defendants [the OTCs] at all times.” The court also found that the OTCs had failed to state any sales tax amounts separately from the other retail charges, but reserved ruling on the tax effect of that finding. Then on December 9, 2013, the court resolved the tax effect of that ruling in favor of the OTCs, concluding that the sales tax amounts that the OTCs had been collecting from their customers and forwarding to the hotels should be excluded from the “sales price” on which the OTCs now owe sales tax, despite the fact that those sales tаx amounts had not been stated separately. Both parties appealed.
II. The Sales Tax Law
Pursuant to D.C.Code § 47-2001, the District of Columbia imposes sales tax upon all “vendors” for “the privilege of selling at retail certain tangible personal property and for the privilege of selling certain selected services[.]” D.C.Code § 47-2002(a). Many of these terms are defined in the statute. A “vendor” is “a person or retailer selling property or rendering services upon the receipts from which a tax is imposed under this chapter.” D.C.Code § 47-2001(w). A “purchaser” is
[a]ny transaction whereby title or possession ... of tangible personal property is ... transferred ... for a consideration, by a vendor to a purchaser, or any transaction whereby services subject to tax under this chapter are rendered for consideration or are sold to any purchaser by any vendor[.]
D.C.Code § 47 — 2001(q). Thus, a “sale” is either transferring possession of property, or rendering a taxable service, for consideration. The taxable services are laid out in the definition of “retail sale” in § 47-2001(n)(l)(A)-(U), the only one at issue here being the following:
The sale or charge for any room or rooms, lodgings, or accommodations furnished to transients by any hotel, inn, tourist camp, tourist cabin, or any other place in which rooms, lodgings, or accommodations are regularly furnished to transients for a consideration.
D.C.Code § 47-2001(n)(l)(C) (emphasis added). The total tax rate imposed on the “sale of or charges for any [hotel] rooms” is 14.5% of the “gross receipts.” See D.C.Code § 47-2002(a)(2) (imposing tax of 10.05%); § 47-2002.02(1) (imposing additional tax of 4.45%). Gross receipts are defined as ‘‘the total amount of the sales prices of the retail sales of vendors[.]” D.C.Code § 47-2001(h).
The statute imposes tax only on the vendor, but requires that “reimbursement for the táx imposed upon the vendor shall be collected by the vendor ... from the purchaser on all sales the gross receipts from which are subject to tax imposed by this chapter so far as it can be done.” D.C.Code § 47-2003(a). The statute further requires that the reimbursement be stated separately, mandating that
[u]pon each sale of tangible personal property or services, the gross receipts from which are taxable under this chapter, the reimbursement of tax to be collected by the vendor from the purchaser under the provisions of this chapter shall be stated and charged separately from the sales price and shown separately on any record thereof at the time the sale is made or evidence of sale issued or employed by the vendor.
D.C.Code § 47-2009. There is one additional wrinkle, and that is in the definition of “sales price.” This is important because the tax is imposed upon “gross receipts” that are, in turn, defined in terms of “sales price.” The statute defines “sales price” as “the total amount paid by a purchaser to a vendor as consideration for a retail sale,” D.C.Code § 47-2001(p)(l), and clarifies that the sales price includes “[a]ny services that are a part of the sale[.]” D.C.Code § 47-2001(p)(l)(C)(i). That definition of “sales price” is limited, however, by a number of exclusions that appear in § 47-2001(p)(2). At issue in this case is the § 47 — 2001(p)(2)(D) exclusion, which provides that “[t]he term ‘salеs price’ does not include ... [t]he amount of reimbursement of tax paid by the purchaser to the vendor under this ehapter[.]”
Finally, there is a municipal regulation on the subject. 9 DCMR § 408, enacted in 1954
Since the District filed this lawsuit on March 22, 2011, the District’s sales tax statute has been amended several times. The D.C. Council inserted mention of “net charges and additional charges” as well as “room remarketer” into the definition of the taxable service in D.C.Code § 47-2001(n)(l)(C) (2012 Repl.), which now reads:
The sale or charge, to include net charges and additional charges, for any room or rooms, lodgings, or accommodations furnished to transients by any hotel, room remarketer, inn, tourist camp, tourist cabin, or any other place in which rooms, lodgings, or accommodations are regularly furnished to transients for a consideration.
D.C.Code § 4T — 2001(n)(1)(C) (emphasis added). The statute goes on to define “room remarketer” as:
[A]ny person, other than the operator of a hotel, inn, tourist camp, tourist cabin, or any other place in which rooms, lodgings, or accommodations are regularly furnished to transients for a consideration, having any right, access, ability, or authority, through an internet transaction or any other means whatsoever, to offer, rеserve, book, arrange for, re-market, distribute, broker, resell, or facilitate the transfer of rooms the occupancy of which is subject to tax under this chapter and also having any right, access, ability or authority to determine the sale or charge for the rooms,, lodgings, or accommodations.
D.C.Code § 47-2001(0-1) (2012 Repl.). Similarly, the tax provisions at § 47-2002(a)(2)(B) and § 47-2002.02(l)(B) were amended to clarify that
[i]f the occupancy of a room or rooms, lodgings, or accommodations is reserved, booked, or otherwise arranged for by a room remarketer, the tax imposed by this paragraph shall be determined based on the net charges and additional charges received by the room remarketer.
D.C.Code § 47-2002(a)(2)(B); § 47-2002.02(1)(B).
III. The Standard of Review
This court reviews summary judgment rulings de novo. Square 345 Ltd. P’ship v. District of Columbia,
IV. The OTCs’ Liability for Sales Tax
The rules of statutory construction are well established in the District of Columbia. See District of Columbia v. Place,
A special rule of construction applies to tax statutes, which under certain circumstances can tip the balance in favor of the taxpayer. In District of Columbia v. Acme Reporting Co., this court made clear that “ ‘the settled rule [is] that tax laws are to be strictly construed against the state and in favor of the taxpayer,’ if the statute in controversy is unclear and ambiguous.”
At the same time, we are mindful of the maxim that “tax laws ought to be given a reasonable construction, without bias or prejudice against either the taxpayer or the state, in order to carry out the intention of the legislature and further the important public interests which such statutes subserve.” [Sutherland] § 66.02. Further, “[s]ince the obligation to pay taxes arises only by force of legislative action, the nature and extent of that liability is determined by the legislative meaning. Therefore, all thе rules of statutory construction are relevant in the interpretation of revenue measures.” Id. § 66.03.
Acme,
Following the rules of statutory construction in general and Acme in particular, the first step in resolving the OTCs’ contested sales tax liability is to determine whether the statutory language is plain and unambiguous. We begin our inquiry by considering the statutory text as it existed prior to the 2011 amendment, and then turn to the amendments to the extent necessary. “A statute is ambiguous when it is capable of being understood in two or more different senses by reasonably well-informed persons.” Sutherland,
As noted above, both the OTCs and the District read the pivotal text from D.C.Code § 47-2001(n)(l)(C) — defining the retail sale at issue as “[t]he sale or charge for any room ... furnished to transients by any hotel” — in a way that has facial plausibility. The OTCs are correct that the only verb in the definition is “furnish[ed],” and therefore it does not seem absurd to read the provision as a tax on the furnishing of rooms, which is arguably the service that the hotels, not the OTCs, рrovide. It is thus plausible to read the “sale or charge,” as the OTCs do, to refer to the result rather than the taxable service. On this reading, the “sale or charge” is merely that which occurs when the hotels exercise the taxable privilege of furnishing rooms.
The District, on the other hand, reads the statute as imposing tax directly on the sale or charge for any room that is ultimately furnished by a hotel, which sounds exactly like the service that the OTCs provide. This reading is also plausible, because nowhere does the statute specify that the party responsible for the “sale or charge” needs to be the same party responsible for the “furnishing” and because the presence of the words “sale or charge” at the beginning of § 47-2001(n)(l)(C) suggests that the provision is aimed at the sales transaction whereby one “sells or charges” for the room, rather than the physical act of furnishing it. Given the reasonableness of the District’s reading— “the tax is a sales tax, not an operator’s tax; it applies to the ‘privilege of selling selected services,’ not to the services themselves” (emphasis in original) — we agree with the trial court’s finding that
[b]oth the Defendant and the District read the statute in the manner a well-informed person might. Because the plain meaning of the statute is open to two reasonable, yet opposing, interpretations, it is necessary under Acme to turn to other tools of reasonable statutory interpretation in order to discern the purpose of the statute and avoid absurd results.
Turning to an analysis of the statute’s structure, purpose, and legislative history, we conclude that these considerations decisively favor the District’s position. First, while the text of § 47-2001(n)(l)(C) leaves cоnsiderable ambiguity about which service exactly is subject to tax under the provision, an examination of the District’s sales tax provisions as a whole lends support to the District’s contention — and the well-reasoned conclusion of the trial court — that the tax is levied on the “sale or charge” for the service, rather than on the provision of the service itself.
As an initial matter, it is significant that the sales tax is imposed upon vendors for “the privilege of selling certain selected services,” rather than rendering or providing them. See D.C.Code § 47-2002. The mention of both the “selling” in § 47-2002 and the “sale or charge” in § 47-2001(n)(l)(C) suggests that the sale is the subject of the tax, and the OTCs’ arguments to the contrary — while plausible on their face — ultimately fail to withstand close scrutiny. For one, the sales tax is imposed on the “gross receipts” of a retail sale under the statute. The “gross receipts” include the entirety of the “sales price” and, here too, the statutory language is notably inclusive in reaching the ancillary services that are part of the taxable transaction: “ ‘Sales price’ means the total amount paid by a purchaser to a vendor as consideration for a retail sale ... the total amount of the sales price includes ... any services that are a part of the sale[.]” D.C.Code § 47-2001(p)(l). This language, and the emphasis it places
First, the OTCs contend that “the salе or charge” that appears at the beginning of § 47-2001(n)(l)(C) cannot be the subject of the tax because, since “sale” is defined in § 47-2001(q) as a “transaction whereby services subject to tax under this chapter are rendered for consideration,” the word “sale” must therefore be a reference to a taxable service — here the furnishing of hotels rooms — rather than a taxable service in itself. Yet the OTCs’ argument — that “[s]ale and charge are used as nouns; they are what results when a hotel has performed the specified activity, i.e., furnished a room for consideration” — cannot be reconciled with the other goods and services enumerated in § 47-2001(n)(l).
Despite the admittedly confusing definition of “sale” found in § 47-2001(q), it is clear that the term “sale” is being used in its everyday sense in § 47-2001(n)(l) and that it is precisely the “sale” that is the focus of § 47-2001(n)(l)(C), just as a sale is the focus of every other provision of § 47 — 2001(n)(l). For context, it is helpful to consider § 47-2001(n)(l)(C) in relation to its neighboring provisions:
(1) “Retail sale” and “sale at retail” mean the sale in any quantity or quantities of any tangible personal property or service ... taxable under the terms of this chapter.... For the purpose of the tax imposed by this chapter, these terms shall include, but not be limited to, the following:
(A)
(i) Sales of food or drink prepared for immediate consumption ...; and
(ii) Sales of food or drink when sold from vending machines;
(B) Any production, fabrication, or printing of tangible personal property on special order for a consideration;
(C) The sale or charge ... for any room ... furnished to transients by any hotel
(D) The sale of natural or artificial gas, oil, electricity, solid fuel, or steam;
§ 47-2001(n)(l). Semantic wrangling aside, the clear purpose of § 47 — 2001(n)(l) is to enumerate certain transactions for the purpose of bringing them within the ambit of the District’s sales tax law. Unsurprisingly for a chapter entitled “Gross Sales Tax,” all of these provisions focus on a sale, and all of them focus on the sale from the customer’s perspective. For example, § 47 — 2001(n)(l)(A)(i) taxes the “[s]ales of food or drink prepared for immediate consumption[.]” One could not fairly argue that this is a tax only on the service of “preparing.” One could not seize on the only participle in the provision, extract the active tense of the underlying verb, and then hold out that verb as the taxable activity. Rather, § 47 — 2001(n)(l)(A)(i) is plainly a tax on the “sale” of food, and the rest of the provision merely describes the food that is to be taxed, that is, food “prepared for immediate consumption[J” In arguing that “one is a ‘vendor’ only if one exercises the taxable privilege of ‘furnishing’ rooms to transients for consideration,” the OTCs are following just that methodology: they are seizing on the only verb (or more precisely, participle) in § 47 — 2001(n)(l)(C), extracting the active tense of that verb, and then holding out that verb as the taxable activity. But that maneuver is no more correct in the context of furnished rooms than in the context of
The noun “sale” — and not “prepare,” the verb (or, again, participle) that appears later in the provision — is the taxablе activity in § 47 — 2001(n) (1) (A) (i). But in arguing that “sale” cannot similarly be the taxable activity in § 47-2001(n)(l)(C), the OTCs rely on a “property” versus “services” distinction. They appear to acknowledge that the word “sale” can be the subject of the tax for the transfer of a good, but not for the provision of a service, claiming that “[t]he Statute’s use of passive voice in defining another type of retail sale, ‘sales of food or drink prepared for immediate consumption,’ does not help the District [because] [t]he tax is imposed on the ‘sale’ of that specific type of property, not on the service of preparing it” (citations omitted) (emphasis in original). This argument relies on a very strained reading of the statute: while the definition of “sale” in § 47-2001(q) appears to offer different definitions for the transfer of property versus the provision of services — for property, a “sale” is “any transaction whereby title or possession ... is or is to be transferred” and for services, a “sale” is “any transaction whereby services subject to tax ... are rendered for consideration,” see § 47-2001(q) — we are not inclined to read these definitions as substantively different, much less to assume that Congress was knowingly weaving back and forth between these definitions when it was enumerating the transactions that qualify as “retail sales” in § 47-2001(n)(l). The OTCs appear to contend that the difference between § 47-2001(n)(l)(A)(i)’s “sale of food or drink prepared for immediate consumption” and § 47-2001(n)(l)(C)’s “sale or charge ... for any room ... furnished to transients by any hotel” is that the former must be construed under the definition of “sale” that applies to the transfer of property and the latter under the definition of “sale” that applies to the provision of services. But that seems backwards. Instead of having to go through each provision and classify it as a “property” or a “service”— which itself might raise difficult interpretive questions — the more natural reading of the statute is much simpler; it is just a tax on the sales transactions that are enumerated within it. Viewed this way, the dual definition of “sale” in § 47-2001(q) seems merely to emphasize that some of those transactions will deal in goods, like § 47-2001(n)(l)(A)(i), and others will deal in services, like § 47-2001(n)(l)(C). Thus, the amount that the purchaser pays for prepared food is taxed under § 47-2001(n)(l)(A)(i), and the amount the purchaser pays for furnished rooms under § 47-2001(n)(l)(C).
The purpose of the sales tax statute— which is simply to tax the enumerated transactions, and to tax them in their entirety — overshadows fine points like the tense of the words. D.C.Code § 47-2001(n)(l)(B), taxing “[a]ny production, fabrication, or printing of tangible personal property on special order for a consideration,” is illustrative. The provision does not include the word “sale” at all, but could easily be phrased as “the sale of tangible personal property produced, fabricated, or printed on special order for a consideration.” That semantic change would not change the substance, and the provision could probably even be rewritten to sound
Not only do the structure and purpose of the District’s sales tax law evince Congress’s intent to tax the full amount that customers pay for hotel rooms in the District of Columbia, but the legislative history confirms this result. Congress aimed to tax the amount that the purchaser pays for the enumerated service, and — in targeting the sale — sought to include ancillary or intermediary transactions. While Congress in the year 1949 did not contemplate online travel companies matching customers with hotels using sophisticated information technology, it did know what a middleman was and did address the issue. We draw the same conclusion as the trial court, which reasonеd:
The structure of the statute is clear: it is designed to tax the transaction by which the room is sold to the transient, not to a third party intermediary. The legislative history further supports that transactions where one party purchases an item and sells it virtually unchanged to the final purchaser, are taxable. In the Senate report on H.R. 3704, the Committee on the District of Columbia noted that the initial purchase was not intended to be included in the statutory definition of retail sales. S.Rep. No. 81-260, at 8, 1949 U.S.C.C.A.N. 1297, 1305 (“[Retail sales is] defined as to be inapplicable to sales where the purpose of the purchaser is to resell the property so transferred in the form in which bought by him.”)[.] This lends support to the Court’s holding that ... it is the ... sale to the ultimate purchaser [that is taxable under § 47-2001(n)(l)(C) ].
Because we agree with the trial court’s determination that § 47-2001(n)(l)(C) has always extended to reach the OTCs’ retail margins, the 2011 amendments to the statute whereby the D.C. Council sought to clarify the reach of the provision are not critical to the outcome of this case. To the extent that they shed light on the meaning of § 47-2001(n)(l)(C), however, the amendments favor the District and exacerbate the problems with the OTCs’ strained reading of the statute. As the trial court concluded, the legislative history of the 2011 amendments is very clear about the Council’s purpose. The preamble for the amendment inserting “room remarketer” into D.C.Code § 47-2002 and § 47-2002.02 confirmed its purpose “to amend Title 47 of the District of Columbia Official Code to clarify and mandate that online travel comрanies pay the full amount of tax on the amount paid by the occupant,” Payment of Full Hotel Taxes by Online Vendors Clarification Act of 2010, D.C. Law 18-364 (2011), and the fiscal impact statement explained that the amendment would clarify that District sales taxes “applfy] to the total amount charged to the consumer by the room remarketer, instead of to the amount charged' to the room remarketer by the hotel[.]” District of Columbia Office of the Chief Financial Officer, Fiscal Impact Statement — “Payment of Full Hotel Taxes by Online Vendors Clarification Act of 2010” (Dec. 2, 2010). The Council certainly intended to clarify that the OTCs’ retail margins are taxable under § 47-2001(n)(l)(C), but it saw no need to overhaul the provision to achieve that result. Rather, it addressed the issue by clarifying that when “room remarketers” sell hotel rooms in the District, the retail margins are part of the transaction and subject to tax. The OTCs’ response to the amendment exposes the snag in their reading: the OTCs contend that, because the amendment merely makes a new category
Moreover, the OTCs’ reading of the statute would leave many provisions of the District’s sales tax law vulnerable to potential loopholes and, as the trial court recognized, could lead to the absurd result in which nobody would be liable for sales tax:
Nobody would be responsible for the retail sales tax under the OTCs’ model. The hotel has no contract with the purchaser until check-in. No monetary transaction ever occurs between the hotels and the ultimate purchaser and thus there is no sale, by the statutory definition, to tax. No tax would ever be due on either of the transactions, a result plainly at odds with the structure and history of the act.
In response, the OTCs point out that— as even the District concedes — the hotels have been remitting sales tax on the “net rates” they receive on the transactions. Thus, the hypothetical in which the hotels and the OTCs both dodge the sales tax has not been occurring, and it is not clear how it would work. There is no allegation that the OTCs are conspiring with or are somehow controlled by the hotels and if, for example, a hotel tried to evade the sales tax by transacting with itself and then remitting tax based only on a “net rate” that it calculated by removing some “convenience” or “booking” fee, then that would constitute a sham transaction that could be ignored under existing tax principles. See Black & Decker Corp. v. United States,
While the loophole that troubled the trial court does not appear to be gaping, we are unpersuaded by the OTCs’ contention that “[e]ven if the Superior Court’s perceived loophole were nonetheless a viable concern, that loophole must be filled by the District Council, the legislative branch, not the courts.” Rather, as the District argues, the rules of statutory interpretation in general and Acme in particular require consideration of practical consequences when determining a reasonable construction of the District’s sales tax law. Acme,
While there is no case law that controls this dispute, this court’s precedents also favor the District’s contention that the OTCs owe sales tax on their retail margins pursuant to § 47-2001(n)(l)(C). The
The parties also draw starkly different conclusions from this court’s decision in Square 345 Ltd. P’ship v. District of Columbia. In Square §4.5, this court addressed the question whether a hotel’s so-called “attrition fees” are subject to sales tax as a retail sale of a hotel room.
The OTCs claim that the Square 345 opinion is inconsistent with the reading of .the statute that this court announces today because Square 345 placed the tax burden on the hotel and did nоt turn the intermediary group into a “vendor” responsible for sales tax. We disagree. In Square 345, the hotel was, in a meaningful sense, “selling” the block of rooms to the group in exchange for receiving the guaranteed attrition fee. The Square 345 court explained this explicitly:
Once the group contracts for the room block, the group’s participants obtain the right to reserve a room at the favorable rate. During the contractually specified period, no persons other than the group’s participants are permitted to reserve the rooms set aside in the room block. This exclusive right to occupy the rooms, upon reservation, thereby renders the group’s participants plainly within the definition of transients as provided by the Code. The statute does not require the transient to actually exercise his or her right to occupy in order for the service to be taxable; therefore, the attrition fee falls within the category of taxable events covered by D.C.Code § 47-2002.
Id. at 1024 (internal citations omitted). While both the OTCs here and the group that guaranteed the attrition fee there can be characterized as “intermediaries” in some sense, the reasoning from Square 345 does not apply to the OTCs operating pursuant to the merchant model. The District’s argument in Square 345 highlights the differences between the two cases. There the District argued, in the alternative, that “the group' who enters into the contract with a hotel should be considered the transient because it makes the block reservation on behalf of its par
Finally, the OTCs argue that the imposition of back sales taxes is unfair and foreclosed by the four affirmative defenses of laches, waiver, equal protection, and the statute of limitations. We disagree.
“Laches is the principle that equity will not aid a plaintiff whose unexcused delay, if the suit were allowed, would be prejudicial to the defendant.” Fed. Mktg. Co. v. Va. Impression Prods. Co.,
Waiver is the unilateral, voluntary, and intentional relinquishment of a known right. In re Thomas,
[D.C. Attorney General] Nickles, however, said he is monitoring [similar sales tax] cases in other jurisdictions but would not take any action until a court delivers a “definitive decision.” Until then, he said, action is a waste of time. “This litigation is going to go on a very long time,” he said. ‘When it becomes clear there is a case we will decide whether to take action.”
Jonathan O’Connell, D.C. Could Be Losing Hotel Taxes to Online Companies, Wash. Bus. J. (May 29, 2009).
The equal protection guarantees contained in the United States Constitution are violated when a law is not applied evenhandedly. Smith v. United States,
Finally, the Superior Court properly rejected the OTCs’ statute of limita
Like the trial court, we conclude that an analysis of the sales tax law’s structure, purpose, and legislative history is sufficient to resolve the ambiguity that existed on the face of the law. Because ambiguity does not remain after the normal tools of statutory of construction have done their work, the Acme ambiguity rule does not come into play. We hold that the OTCs, in their merchant model transactions, were engaging in “the sale or charge for any room ... furnished to transients by any hotel” within the meaning of D.C.Code § 47-2001(n)(l)(C), and are therefore vendors liable for the District sales tax.
V. The § 47-2001(p)(2)(D) Exclusion
Given that we have found the OTCs liable for the District sales tax, the final issue in this case is whether they owe tax on the “sales tax reimbursement” amounts that they have been passing on to the hotels, ultimately to be remitted to the District as the tax due on the “net rate.” The trial court, granting summary judgment to the OTCs, concluded that they do not, because “[t]he amount of reimbursement of tax paid by the purchaser to the vendor under this chapter” is expressly excluded from the definition of “sales price” by § 47~2001(p)(2)(D). We agree.
The dispute over the § 47-2001(p)(2)(D) exclusion concerns three words. The provision excludes frоm the term “sales price” “[t]he amount of reimbursement of tax paid by the purchaser to the vendor under this chapter” (emphasis added). Because a different part of the chapter requires the seller to state the amount of sales tax separately — and the OTCs have indisputably not been complying with the separate statement requirement — the District contends that any sales tax reimbursement that the OTCs have collected from their customers and passed on to the hotels does not count as having been paid “under this chapter,” and therefore is not entitled to the § 47-2001(p)(2)(D) exclusion.
The District’s argument depends on a problematic reading of the statute. The statute does not make compliance with the separate statement requirement a prerequisite to the § 47-2001(p)(2)(D) exclusion. If Congress had wanted to exclude tax reimbursements from the tax base only when they were separately stated, it could have done so. Congress knew how to
As a whole, § 47-2001(p)(2) reads:
(2) The term “sales price” does not include any of the following:
.(A) Cash discounts allowed and taken on sales;
(B) The amount charged for property returned by purchasers to vendors upon rescission of contracts of sale when the entire amounts charged therefor are refunded either in cash or credit, and when the property is returned within 90 days from the date of sale;
(C) The amount separately charged for labor or services rendered in installing or applying the property sold, except as provided in subsection (n)(l) of this section;
(D) The amount of reimbursement of tax paid by the purchaser to the vendor under this chapter; or
(E) Transportation charges separately stated, if the transportation occurs after the sale of the property is made.
(Emphasis added). While Congress made subsection (E) conditional on there being a separate statement, it did not do the same for section (D). And it is precisely because section (D) does not depend on a separate statement that the District seizes upon the last three words, “under this chapter,” and uses those words to imply a link to the separate statement requirement found in § 47-2009. Thus, the District reads “under this chapter” in § 47-2001(p)(2)(D) as requiring conformity with the separate statement requirement in § 47-2009 and, presumably, every other provision of the sales tax law. But that is a peculiar reading of “under this chapter.” This can be seen, for example, in the text of § 47-2009 itself:
Upon each sale of tangible personal property or services, the gross receipts from which are taxable under this chapter, the reimbursement of tax to be collected by the vendor from the purchaser under the provisions of this chapter shall be stated and charged separately from the sales price and shown separately on any record thereof at the time the sale is made or evidence of sale issued or employed by the vendor.
(Emphasis added). Section 47-2009, then, requires the separate statement of any sales tax reimbursement amount collected “under ... this chapter,” but it does not use “under this chapter” as a catch-all term for ensuring absolute compliance with all of the chapter’s requirements. Rather, it uses the phrase in its regular sense, clarifying which sales are being discussed. The phrase is used in much the samе way in § 47-2001(p)(2)(D), where it again clarifies which taxes are being discussed — that is, only those in Title 47, Chapter 20, entitled “Gross Sales Tax.”
The District’s arguments to the contrary are unpersuasive. First, the District relies on a municipal regulation, 9 DCMR § 408.2, which states that the tax reimbursement amount is to be excluded from the sales price if the reimbursement amount is stated separately. 9 DCMR § 408.2. The problem with this argument is that the regulation does not say that the tax reimbursement amount is to be excluded from the sales price only if stated separately. We acknowledge that 9 DCMR § 408.2 appears to be a completely superfluous provision, as its point is already
Yet context is critical, and a careful look at the structure of both the statute and the regulation counsels against implying an “only” as sometimes can and should be done pursuant to the expressio unius canon. To do so, we think, would cut against the thrust of 9 DCMR § 408 as a whole. Section 408 begins with the preface: “In addition to the provisions of the Act (D.C.Code § 47-2001(p)(2)), the term ‘sales price,’ as used in the Act, shall not include any of the exceptions set forth in this section.” 9 DCMR § 408.1. Significantly, § 47-2001(p)(2) lists things that are not included in the term “sales price,” one of which is “[t]he amount of reimbursement of tax paid by the purchaser to the vendor under this chapter.” And each of the • substantive provisions of 9 DCMR § 408 includes the matching language “shall not be subject to the tax,” which further suggests that the point of this regulation is to add to the list of exclusions found in the statute. See 9 DCMR § 408.1-4. Section 408 essentially says that, in addition to the § 47-2001(p)(2) exclusions, here are more exclusions. The District’s reading seems to be that, because one of the exceptions in the regulation’s list of “more exceptions” can — by implying the word “only” — be read as narrower than the corresponding exception in the statute’s list of “original exceptions,” then the “original exceptions” list has actually been eroded. While there is no rule against including cross-cutting provisions in the same section of a regulation — and there would be nothing wrong with the District’s current tax authority, the Office of Tax and Revenue (OTR), providing a clarification that narrows one of the 47-2001(p)(2) exclusions, if it chose to — we think that 9 DCMR § 408.2 would be a cryptic way of expressing an intention to narrow. We are unwilling to read a regulation purportedly meant to broaden the § 47-2001(p)(2) exclusions as actually constricting § 47-2001(p)(2)(D).
The trial court found that the OTCs “substantially complied” with the separate statement requirement, then, and the District’s counterargument relies on a sort of all-or-nothing logic we cannot accept. Granted, there does not appear to be a bright line between a noncompliant reimbursement and something that is not a reimbursement at all. By the District’s logic, though, a tax reimbursement amount that was understated by fifty cents, for example, would seem to be not merely noncompliant, but something other than a reimbursement “under this chapter.” In that example, much like this case, the customer would lack exact knowledge of the amount of reimbursement she has paid, but it is still farfetched to say that the reimbursement would therefore not be a reimbursement “under this chapter.”
As the District correctly points out, there is no general rule that substantial compliance is good enough when it comes to the formalistic and often technical requirements of the tax code, see Kleiboemer v. District of Columbia,
The District also makes a number of policy arguments, emphasizing that Congress focuses on the consumer’s perspective when passing sales tax: laws because the consumer might need the separately stated sales tax information to comply with his or her own tax obligations, and that Congress strives for consumer protection (noting that, elsewhere in the sales tax law, Congress made it a criminal offense for vendors to assure customеrs that the vendors will absorb the District sales tax). Some of these arguments justify the separate statement requirement, but they are not reasons to change the definition of “sales price” adopted by the tax code. Ultimately, many of these arguments rely on the logic that, since the OTCs were culpable in not complying with the separate statement requirement, then they do not “deserve” the § 47-2001(p)(2)(D) exclusion. But § 47-2001(p)(2)(D) excludes sales tax reimbursement amounts from the definition of “sales price,” and the remedy for the failure to comply with a given provision of the tax code is not necessarily greater taxation.
VI. Conclusion
For the reasons in this opinion, we affirm the judgment of the Superior Court.
So ordered.
. This opinion resolves the tax liability of appellants for their activities in the District dating back to 1998. The District brought suit on March 22, 2011, and the District’s sales tax law has been amended several times since then. Unless stated otherwise, the sales tax law is discussed as it existed before April 8, 2011, and citations are to the 2001 version of the D.C.Code. When this opinion discusses the changes in the District sales tax law that have taken place since April 8, 2011, citations are to the 2012 version of the D.C.Code.
. The District points out that the language from the 1954 regulation has its roots in an even earlier regulation, which was adopted under authority of the District of Columbia Revenue Act of 1949. See 1 D.C.Reg. 4 (July 19, 1954).
. Myriad middlemen, not unlike the OTCs, undoubtedly play a role in many transactions involving the sale of prepared food. Yet that fact does not make the tax anything other than a conventional sales tax on the amount the purchaser pays for the food.
. The OTCs argue at length that the retail margins should not be part of the taxable sale because the margins are earned not for “furnishing rooms” but for "facilitating reservations.” We do not take issue with the OTCs’ characterization of what they do. Because the District’s statute imposes tax not on the furnishing of rooms but on the "sale or charge ... for any room ... furnished,” however, that characterization does the OTCs no good. Ultimately, "facilitating reservations” appears to be another way of saying "selling rooms.” And in fact, "selling rooms” appears to be just how the OTCs themselves described the service they provide before the onset of this sort of sales tax litigation. See Travelocity.com LP v. Wyo. Dep’t of Revenue,
. Because we conclude that the statute, plainly read, does not provide that tax reimbursement amounts collected but not stated separately are subject to additional taxation, we need not address the OTCs’ argument that such a law would constitute an impermissible "tax on tax.”
. The District also claims that its interpretation of the regulation is entitled to deference, and cites several cases for the entirely true propositions that an agency’s interpretation of its own regulation is controlling unless plainly erroneous or inconsistent with the regulation, see Auer v. Robbins,
. While the District argues that, according to the reading we adopt today, there is no consequence for the OTCs' failure to state the tax reimbursement amount separately, the District has not shown the inadequacy of injunc-tive relief. In fact, enjoining the OTCs from failing to state the sales tax separately was exactly the relief the District sought at the beginning of this litigation. Indeed, it seems that injunctive relief is proper here because— putting aside the District’s reading in which the § 47-200 l(p)(2)(D) exclusion is an exemption that the OTCs "earn” when they state the reimbursement amounts separately and "forfeit” when they do not — it is undisputed that the District has been receiving the right amount of tax due on the hotel’s net rate had the reimbursement amounts been stated separately. As far as tax on the net rate, then, the District has been receiving the correct amount, though a stricture of the sales tax law has not been complied with. Therefore, the naLtural relief is for the District to keep that amount and to get an injunction to ensure that the stricture be complied with. That is the relief the District sought, after all. By way of analogy, if one owes tax of $100 that must be remitted in a red envelope, but one remits $100 in a blue envelope, the District is not entitled to more than $100, only an order that one stop using the blue envelope. In arguing otherwise, the District points out that the OTCs’ failure to make a separate statement worked "to the detriment” of their customers and so there must be some consequence for that. Not only is this sort of punitive taxation not provided for in the text of the sales tax law, however, but it is also not clear how the OTCs’ payment of more money to the District is going to somehow make those customers whole.
Concurrence Opinion
concurring’ in part and dissenting in part:
I agree with the court that the online travel companies (OTCs) are subject to sales tax in the District of Columbia, and I join Parts I through IV of the court’s opinion. I respectfully dissent, however, from the court’s holding in Part V of the opinion that the OTCs are not liable for sales tax based on the full amount the OTCs charged purchasers.
Under the applicable provisions, vendors are required to pay a tax based on their gross sales receipts. D.C.Code § 47-2002(a) (2012 Repl.). To the extent possible, vendors must obtain reimbursement for that tax from purchasers. D.C.Code § 47-2003(a) (2012 Repl.). Gross receipts are defined in terms of sales price, and the sales price does not include tax-reimbursement amounts “paid by the purchaser to the vendor under this chapter [i.e., the chapter applicable to gross sales tax].” D.C.Code §§ 47-2001(h), -2001(p)(2)(D) (2012 Repl.). Vendors are required to charge purchasers separately for the tax reimbursement, and that charge must be separately stated on any receipt at the time of sale. D.C.Code § 47-2009 (2012 Repl.). By long-standing regulation, “[t]he amount of reimbursement of taxes paid by the purchaser to the vendor under the Act shall not be subject to the tax if the reimbursement amount is stated separately from the sales price.” 9 DCMR § 408.2 (2015).
The OTCs did not comply with the statutory requirement that vendors separately charge purchasers for tax reimbursement, instead imposing a single charge that referred to taxes and fees without indicating the exact amount of either. The District of Columbia contends that the OTCs therefore did not obtain proper tax reimbursement and thus are liable for sales tax based on the entire amount the OTCs charged purchasers. In my view, the District’s interpretation of the applicable provisions is reasonable аnd entitled to deference from this court. See, e.cj., Auer v. Robbins,
The court does not explicitly address whether the District’s interpretation of the applicable statutory provisions is entitled to deference or whether 9 DCMR § 408.2 should be upheld as long as the regulation reflects a reasonable interpretation of the applicable statutory provisions. The court does conclude, however, that the District’s interpretation of § 408.2 is not entitled to deference, because that interpretation was not advanced at the outset of this litigation and is presented in a brief filed in this court by the Office of the Solicitor General. The Supreme Court has explained, however, that “Auer ordinаrily calls for deference to an agency’s interpretation of its own ambiguous regulation, even when that interpretation is advanced in a legal brief....” Christopher v. SmithKline Beecham Corp., — U.S. —,
In granting summary judgment in December 2012, the trial court ruled that the District waived this argument in a discovery response filed in February 2012. In opposing summary judgment in May 2012, however, the District clarified that it in fact was seeking to recover sales tax based on the full amount the OTCs charged purchasers, without any reduction for purported tax reimbursement. In the absence of any finding that the OTCs were prejudiced, I would not treat the argument as irretrievably lost based on a statement in a discovery response that was clarified before the trial court ruled on the summary-judgment motion. Cf., e.g., Brooks v. United States,
On the merits, I agree with the District that 9 DCMR § 408.2 is better understood to mean that, unless the amount of tax reimbursement is stated separately from the sales price, vendors are not entitled to a reduction in tax based on a claim that some of the price to the purchaser was actually tax reimbursement. Two distinct canons of construction support this understanding of § 408.2. The first canon is “expressio unius est exclusio alterius, which embodies the common-sense principle that when a legislature makes express mention of one thing, the exclusion of others is implied.” Odeniran v. Hanley Wood, LLC,
The court concludes, however, that the foregoing considerations are inadequate, because interpreting 9 DCMR § 408.2 to impose a limitation “would cut against the thrust of ... § 408 as a whole,” which the court describes as adding to the statutory list of exceptions to “sales price.” The principal difficulty with that conclusion is that § 408.2 is outside that thrust in any event, because even under the court’s interpretation § 408.2 does not add to the statutory list of exceptions but instead pointlessly reiterates one statutory exception. Moreover, even if § 408.2 did point in a direction different from the other parts of § 408, that consideration would, in my view, be outweighed by the contrary considerations I have previously noted. In sum, § 408.2 provides for a reduction for tax reimbursement if the amount of tax reimbursement is separately stated. I do not think that that provision can reasonably be interpreted to permit such a reduction even if the amount of tax reimbursement is not separately stated.
I also would conclude that, so construed, 9 DCMR § 408.2 is a reasonable interpretation of the applicable statutory provisions. Those provisions authorize a reduction for tax reimbursement and require that tax reimbursement be separately stated, but do not speak explicitly to what should happen if a vendor does not separately state the amount of tax reimbursement. D.C.Code §§ 47-2001(h), - 2001(p)(2)(D), -2009. In essence, § 408.2 reflects the view that part of the purchaser’s payment to the vendor can be treated as tax reimbursement by the purchaser only to the extent that it is documented at the time of the-sale that the parties to the sale understood that a specified amount of the purchaser’s payment was tax reimbursement rather than sales price.. Both as a matter of ordinary language and as a matter of policy, that seems to me a natural and reasonable approach to determining what portion of a purchaser’s payment
With respect to policy, the District persuasively argues that the separate-statement requirement serves important purposes, including ensuring that both parties to a sale understand the amount of sales tax involved, which can determine other tax obligations of the parties. See, e.g., D.C.Code § 47-2205 (purchaser liable for unreimbursed tax) (2012 Repl.); 26 C.F.R. § 1.164-5 (2015) (permitting federal tax deduction for state sales tax if amount of sales tax is separately stated). As interpreted by the District, the applicable provisions provide a salutary incentive to comply with the separate-statement requirement. Unsurprisingly, a number of other jurisdictions take the same substantive approach, refusing to permit vendors to reduce their tax based on purported tax reimbursement that was not separately stated аt the time of the transaction. See, e.g., Saco Indus. v. Illinois Dep’t of Revenue,
Finally, even assuming that the doctrine of substantial compliance is applicable in the present context, I do not view the OTCs’ failure to provide any indication of the amount of reimbursement as constituting substantial compliance with the OTCs’ statutory obligations. Nor do I view the imposition of a tax on the full amount of the customers’ payments as an impermissible penalty.
In sum, I would hold that the OTCs are liable for tax based on the full amount of their customers’ payments, without reduction for purported tax reimbursement. I therefore respectfully dissent from the holding of Part V of the court’s opinion affirming the contrary ruling of the trial court.