Business

Hilton Head hopes ruling bolsters quest for online booking taxes

A state Supreme Court ruling could help Hilton Head Island collect more taxes from hotel-booking websites.

The high court Tuesday upheld a lower court's decision that Travelscape owes state sales and accommodations taxes on fees the company charges consumers in a case brought by the S.C. Department of Revenue.

Travelscape -- which runs Expedia.com -- calculates taxes on the rooms based on the rates it negotiates with hotels.

The higher court agreed with an administrative law judge who said Travelscape owes taxes based on the total amount it charges consumers -- which includes added facilitation and service fees and a "tax recovery charge" -- because those fees are part of the company's "gross proceeds."

Ronnie Bonds, an attorney representing the Town of Hilton Head Island in a case against about a dozen similar sites, said the latest ruling should give the town "substantial precedential value" in its bid to collect local accommodations taxes.

The same legal principles should apply because legislation governing state and local taxes is very similar, he said.

Neither Bonds nor Hilton Head officials would estimate how much they think the sites owe the town, but both called the amount at stake "substantial."

"We believe the recent outcome of the state's case places the town in good position to receive a substantial settlement soon," town finance director Susan Simmons wrote in an e-mail.

They plan to seek taxes retroactively for all rooms the sites have sold on Hilton Head, Bonds said. Some of the sites have operated on the island since the late 1990s, he said.

"It's not a big hunk for each transaction, but there's just lots and lots of transactions," he said.

Booking sites settled a similar case late last year by paying a total of $900,000 to Charleston, Mount Pleasant and North Myrtle Beach.

Expedia officials decried the court's decision and said they've paid the state millions of dollars in taxes since 2001, according to a statement sent through a spokesman.

"Unfortunately, South Carolina is now reaching outside of its borders to tax services that are not performed in its state," the statement read. "(The) decision is inconsistent with the growing body of court decisions finding that the services provided by the online travel companies are not subject to local taxes, including decisions by eight federal courts and numerous state courts."

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