More State Tax E-Commerce Battles. This Time, Amazon and Expedia Battle Texas And South Carolina

The Supreme Court of South Carolina has ruled against Expedia, concluding that the travel E-Commerce site has to pay state sales tax based on all revenue, not merely on the deeply discounted block of room rates it pays. Meanwhile, Amazon is suing the Lone Star state, demanding access to a state audit that determined it owes Texas $269 million.

In South Carolina, Expedia made the standard E-Commerce arguments, namely that it doesn't do its business in South Carolina and that it's not really in the hotel business, as it doesn't own any hotels. The Supreme Court saw matters differently.

Expedia "contends it is not required to pay sales tax on the service and facilitation fees it retains because such fees are 'derived from' the services it provides, not from the rental charge for the hotel room. We disagree," the court ruled. Expedia "first asserts it is not engaged in the business of furnishing accommodations because it neither owns nor operates hotels. Because (Expedia) is only an intermediary providing hotel reservations to transients and does not physically provide sleeping accommodations, (Expedia) contends it is not subject to the Accommodations Tax. We disagree. While (Expedia) does not physically provide accommodations, it is in the business of doing so."

The court then addressed the argument that Expedia "is not subject to the Accommodations Tax because it is not engaged in business in South Carolina. (Expedia) contends the phrase 'within the State' modifies 'every person' in subsection (E) and thus imposes the tax only on entities having a physical presence in the State. Because it does not have a physical presence in South Carolina, (Expedia) asserts it is not required to remit the tax. (Expedia also argues that) the absence of a use tax in South Carolina and the lack of a provision dealing with out-of-state business transactions in section 12-36-920 demonstrates that the legislature did not intend to impose the Accommodations Tax on (Expedia). We disagree."

Why does it disagree? Said the court: "Clearly, Travelscape was engaged in the business of furnishing accommodations in South Carolina during the audit period, seeing as it: (1) entered into contracts with hundreds of hotels in South Carolina in which the hotels agreed to accept a discounted price, or net rate, for reservations made on Expedia; (2) sent employees to South Carolina for the purpose of negotiating such agreements; and (3) booked reservations in exchange for consideration at hotels located in this State. Accordingly, we find the plain language of section 12-36-920(E) imposes the sales tax on Travelscape because it was engaged in the business of furnishing accommodations in South Carolina."

Expedia could hardly argue that it didn't do a lot of business in South Carolina, given that it admitted having contracts with at least 354 hotels in the state.

In Texas, the Amazon case is quite different. Texas performed an audit on Amazon business and concluded that it owes $269 million in sales tax. Bearing in mind that Texas has a rather strong vested interest in concluding that it is owed as much money as possible, Amazon had the audacity to ask to see the audit. That request was declined, because the audit is protected by—wait for it—attorney-client privilege.

Amazon sued Texas, arguing that the state's Public Information Act requires disclosure. Forget public information. Amazon is a direct party to this action and has every right to examine the audit. This is like being told by the IRS that you owe $800,000 in back taxes and when you reply, "What back taxes are you talking about?" they reply, "Sorry. That's confidential IRS data."

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