State Supreme Court Reverses $34M Ruling Against Travel Companies in Tourism Tax Case

The Arkansas Supreme Court on Thursday ruled that online travel companies don’t have to pay local tourism taxes before 2019, ending a nearly 15-year legal dispute between OTCs and government agencies in Arkansas.

The state Supreme Court decision reversed a ruling from Jefferson County Circuit Court Judge Robert Wyatt, who ruled in favor of cities, counties and advertising and promotion commissions in 2022. In 2023, Wyatt awarded the government agencies $34.2 million in damages and penalties, plus $11.5 million in attorneys’ fees and costs. 

Arkansas counties, cities and advertising and promotion commissions had alleged that for years the OTCs such as Hotels.com, Hotwire, Expedia and Travelocity shorted tax revenue to the agencies because the OTCs remitted taxes based on the room price they negotiated with hotels.

Meanwhile, the OTCs were collecting taxes from customers based on the higher price actually paid for the room and profiting from the difference. The agencies sued the online travel companies in September 2009.

But the OTCs said they weren’t entities that were subject to the tax, and the state Supreme Court agreed, according to Chief Justice John Dan Kemp, who wrote the 14-page majority decision. 

While the case was pending, the dispute over the future tax payments ended in 2019. The Arkansas Legislature passed a bill that made it clear that online travel companies, which were called “accommodations intermediaries” have to pay state, local and tourism taxes for booking the hotel rooms. 

The state Supreme Court found that “if accommodations intermediaries had previously been subjected to the taxes, then the 2019 amendments would have been unnecessary. And the legislature will not be presumed to have done a vain and useless thing.” 

The Department of Finance & Administration also issued a legal opinion in 2017 on the taxability of hotel-related fees. It said that the OTCs weren’t subject to gross receipts and tourism tax for providing hotel rooms. 

“Here, DF&A’s established position — that prior to 2019, the OTCs were not entities subject to the taxes — is consistent with our reading of the statutes,” the opinion said. 

Attorney Thomas Thrash of Little Rock, who represented the cities and the counties in the case, said Thursday that the plaintiffs are disappointed in the outcome, “but it was a well-reasoned opinion.”

Ryan Younger, an attorney at Quattlebaum Grooms & Tull of Little Rock who is representing the OTCs, said he wasn’t authorized to comment on it.