North Carolina Taxes Were Not Underpaid by Online Travel Companies

The U.S. District Court found that online travel companies (“OTCs”)did not underpay North Carolina local occupancy taxes. It was agreed that they are not hotel operators for purposes of the state sales tax. North Carolina sales tax is only applicable to operators of hotels and the local occupancy tax may be assessed only against gross receipts as determined from the standpoint of an operating hotel. Although the local occupancy tax is imposed upon certain amounts (gross receipts), the state sales tax is imposed upon specific classes of retailers, including operators of hotels and similar types of businesses. As such, the U.S. District Court found the scope of the local occupancy tax is expressly limited by the state sales tax. In addition, the local occupancy tax applies only to the hotel’s gross receipts (the room price charged by the hotels themselves). The OTCs are required to collect and remit taxes only on the discount price they charge the participating hotels and not the marked-up price that the consumers pay to the OTCs. Since the online travel companies had not underpaid their local occupancy taxes and there was no legal injury to Pitt County, the county had no standing to file suit, the county lacked jurisdiction over the county’s claim and the county’s suit was dismissed. (Pitt County v. Hotels.Com L.P., United States District Court for the Eastern District of North Carolina, Eastern Division, No. 4:06-CV-30-BO)

Posted on June 8, 2009