Tax News

CCH (cch.taxgroup.com) reports:

  Under the plain meaning of the statute that authorizes Pitt County to levy a North Carolina local occupancy tax under its own ordinance, an online travel company (OTC) is not a retailer because it is not a type of business that is similar to a hotel, motel, tourist home, or camp. As a result, an OTC is not subject to the Pitt County occupancy tax, and the District Court's dismissal of the complaint was affirmed because the complaint failed to state a claim upon which relief can be granted.

  Pitt County levies an occupancy tax on the gross receipts from the rental in the county of any room, lodging, or similar accommodation subject to sales tax under state law. State law, in turn, imposes its sales tax upon retailers for the privilege of selling, and operators of hotels and motels are considered "retailers" for purposes of the sales tax. The OTCs pay participating hotels a certain amount (a discount price) when they find people to rent rooms and consumers then reserve the rooms online for a marked-up price that includes applicable taxes. The OTCs collect and pass on taxes to the hotels for remittance to the county. The OTCs, however, after collecting the taxes on the marked-up price, only pass on to the hotels the amount of taxes that are imposed on the discount price and they keep the difference. The District Court determined that the OTCs were not subject to the county's occupancy tax and the county had suffered no injury, and dismissed the action on the ground that the county lacked standing to sue. The U.S. Court of Appeals for the Fourth Circuit agreed with the District Court that an OTC does not meet the statutory definition of a "retailer" because it is not a type of business that is similar to a hotel, motel, tourist home, or tourist camp, and that the county is not entitled to collect the occupancy tax. However, although the Court of Appeals concluded that the county did have standing to sue in that the county alleged that it was injured by the failure of the OTCs to remit occupancy taxes on the full rental rate of hotel rooms in the county, the appellate court affirmed the District Court's judgment of dismissal on the alternative ground that the county's complaint failed to state a claim upon which relief can be granted.

  According to the Court of Appeals, OTCs are not operators of the hotels whose rooms they offer to the public on the Internet. The OTCs have no role in the day-to-day operation or management of the hotels, and as such, they cannot be said to operate the hotels. The county argued that OTCs and hotels are "similar type businesses" under the statute because the OTCs, like hotels, make a profit or gain from the rental of rooms. The appellate court noted, however, that unlike OTCs, hotels, motels, tourist homes, and camps all provide lodging to patrons on site. The businesses enumerated in the statute are all physical establishments with rooms or other accommodations where guests can stay. A business that arranges for the rental of hotel rooms over the Internet but does not physically provide the rooms is not a business that is of a similar type to a hotel, motel, tourist home, or camp. Consequently, although the District Court did have jurisdiction to entertain Pitt County's claim, its dismissal of the complaint was appropriate on the alternative ground that the complaint failed to state a claim upon which relief can be granted.

Pitt County v. Hotels.Com, L.P. , U.S. Court of Appeals, No. 07-1900, January 14, 2009, ¶202-435

  Other References:

  Explanations at ¶60-480