The Hawai‘i Supreme Court will hear a case that could leave online travel agency Booking.com owing the state nearly $20 million in taxes.
In 2021, the Hawai‘i Department of Taxation informed the Netherlands-based Booking.com B.V. that the company owed $19.7 million in General Excise Taxes between 2010 and 2020 after a change to the department’s administrative rules.
According to previous rules, the services provided by “commissioned agents” — which includes online booking agencies like Booking.com — were considered to be consumed at the agent’s offices. In the case of Booking.com, that location was Amsterdam, meaning its services were subject to Dutch, not Hawaiian, tax laws.
The updated rule change provided an exception to that rule whereby online booking agents’ services are now considered to be consumed at the address being booked. This change left Booking.com owing millions in unpaid GET revenues. According to a DOTAX court filing, the agency had not paid any GET since 2010.
Since then, a court battle has blossomed over the delinquent taxes, with the Hawai‘i Supreme Court accepting the case last week.
Booking.com has argued in a lawsuit against DOTAX and its director, Gary Suganuma, that the tax is discriminatory, violating the Internet Tax Freedom Act, a federal law established in 1998 prohibiting state and local governments from imposing taxes on the internet or online activity.
However, that is not what the Supreme Court case is about. As is the case with many Supreme Court cases, the Booking.com suit is less about the material concerns that triggered the initial complaint — e.g., the millions of dollars owed in back taxes — than it is about an esoteric conflict between two state laws that dictate whether the state’s district courts can adjudicate tax-related cases.
When Booking.com filed its initial complaint against DOTAX in 2019 — before any tax assessment was formally presented, but after the rule change was implemented — DOTAX quickly moved to have it dismissed, arguing that state laws prohibit district courts from ruling “in any controversy with respect to taxes.”
On the other hand, Booking.com argued that its complaint was not a “controversy” involving taxes, but was instead about the validity of a state agency rule, which district courts can adjudicate.
First Circuit Court Judge James Ashford initially disagreed with DOTAX, but after DOTAX requested the court reconsider, a different judge, Gary Chang, came to the opposite verdict. Chang dismissed Booking.com’s complaint, leading the agency to bring the case to the state Intermediate Court of Appeals.
The ICA ruled in 2023 in favor of DOTAX, finding the arguments by Booking.com disingenuous, so the website once again appealed to a higher court.
The Supreme Court has agreed to hear oral arguments on the case, which are scheduled to take place Nov. 4. Once that case is resolved, the greater question about the $19 million in GET will be discussed at the state Tax Appeal Court, where the case has stalled for four years.
For the latest news of Hawai‘i, sign up here for our free Daily Edition newsletter.
