Montana Dept. of Revenue v. Priceline.com, Inc.

Montana Dept. of Revenue v. Priceline.com, Inc., 2015 MT 241 (Aug. 12, 2015) (Shea, J.; McKinnon, J. concurring & dissenting) (5-2, aff’d & rev’d)

Issue: (1) Whether the district court erred in determining online travel companies are not required to collect and remit taxes on OTC fees under the Lodging Facility Use Tax; (2) whether the district court erred in determining OTCs are not required to collect and remit taxes on OTC fees under the sale tax on accommodations and campgrounds; (3) whether the district court erred in determining OTCs are not required to collect and remit taxes on OTC fees under the sales tax on rental vehicles; and (4) whether this decision should be applied retroactively.

Short Answer: (1) No; (2) yes; (3) yes; and (4) yes, to the date the department filed this action.

Affirmed and reversed

Facts: Appellees online travel companies (OTCs) provide online travel information and secure reservations for travelers for lodging and car rental services in Montana. They negotiate with suppliers for a wholesale rate and then charge customers a higher amount. The difference includes taxes on the wholesale rate and an amount retained by the OTC as compensation for its services (“OTC fees”). The OTCs collect tax on the wholesale rate and pass it on to the hotel or rental agency, which then remits it to the department. The OTCs do not directly remit taxes to the department, and they do not collect tax on the OTC fees.

In 2010, the department sent letters to several OTCs stating the OTCs were not registered with the department and/or were not collecting the Lodging Facility Use Tax (4%), the Lodging Facility Sales Tax (3%) and/ot the Rental Vehicle Sales tax (4%). OTCs responded by saying they were not required to register or collect taxes.

In November 2012, the department filed suit against the OTCs, arguing the OTC fees are taxable under the Lodging Facility Use Tax and Lodging Facility Sales Tax. 

Procedural Posture & Holding: The parties filed cross-motions for summary judgment, and the district court granted the OTCs’ motion, holding the plain language of the statutes contains no basis on which to tax OTC fees. The department appealed, and the Court heard oral argument on April 10, 2015. 

Reasoning: (1) The Lodging Facility Use Tax imposes “on the user of a facility a tax at a rate equal to 4% of the accommodation charge collected by the facility.” § 15-6-111(1). MCA. An “accommodation charge” is “the fee charged by the owner or operator of a facility for use of the facility as lodging.” § 15-65-101(1), MCA. The department promulgated a rule in 2003 defining “owner or operator” as a person or organization that rents a lodging facility to the public and is ultimately responsible for the financial affairs of the facility. A.R.M. 42.14.101(9) (2003). The OTCs are not responsible for the financial affairs of a facility, and are not owners or operators. The plain language of the statute provides no basis for taxing OTC fees.

(2) Montana adopted a 3% sales tax on accommodations and campgrounds in 2003. It is imposed on the purchaser and must be collected by the seller and paid to the department. Neither party disputes that the OTCs charge hotel customers a fee for the services they provide, separate from the wholesale rate that the OTCs pay the hotel for a room. The plain language of the statute requires taxing OTC fees, and requires OTCs, who are “sellers” under the statute, to collect and remit taxes to the department.

(3) A sales tax is applied to the “base rental charge for vehicles.” Statutory interpretation dictates that “base rental charge” and “sales price” are to be read as synonymous. The sales prices includes OTC fees. OTCs, as sellers, must collect and remit to the department taxes on OTC fees.

(4) The Court holds that the OTCs are liable or payment of the Sales Tax rom the date the department filed this lawsuit, Nov. 8, 2010.

Justice McKinnon’s Concurrence & Dissent (joined by Justice Rice): Justice McKinnon concurs in the first issue, but dissents from the majority’s holding that the OTCs are subject to the Sales Tax. “Because the legislative history clearly establishes that OTCs were not intended to be part of the tax base, I would not apply the Sales Tax to OTCs. Finally, where two constructions of a tax statute are possible, the question of whether a particular tax applies should be resolved in favor of the taxpayer.” ¶ 27.