on Briefs August 14, 2015
from an order of the circuit court for Dane County: JOHN C.
ALBERT, Judge. Cir. Ct. No. 2014CV1708.
behalf of the petitioner-appellant, the cause was submitted
on the briefs of Maria S. Lazar, assistant attorney general,
and Brad D. Schimel, attorney general.
behalf of the respondent-respondent, the cause was submitted
on the briefs of Timothy G. Schally and Robert L. Gordon of
Michael Best & Friedrich LLP, Madison, and Elizabeth B.
Herrington of McDermott Will & Emery LLP, Chicago,
Kloppenburg, P.J., Sherman and Blanchard, JJ.
Wis.2d 596] SHERMAN, J.
[¶1] The Wisconsin Department of Revenue
(DOR) appeals an order of the circuit court affirming a
decision by the Tax Appeals Commission (Commission) that
reversed tax assessments imposed by DOR against Orbitz,
L.L.C. DOR contends that the Commission wrongly concluded
that Orbitz's reservation facilitation services are not
among the taxable services enumerated in Wis. Stat. §
77.52(2)(a)1. (2005-06). For the reasons discussed below, we
[¶2] The following facts are taken from the
Commission's May 2014 decision.
[¶3] Orbitz is an online travel company that
contracts with hotels, which are not owned, operated, or
managed by Orbitz, for the right to facilitate reservations
[367 Wis.2d 597] for, and in the name of, travelers at "
[n]et [r]ates," that are determined by the hotels. Via
Orbitz's website, travelers can compare hotel
availability and offerings throughout the world, including
Wisconsin, and reserve hotel rooms.
[¶4] The hotels that contract with Orbitz do
not set aside certain rooms exclusively for Orbitz, nor does
Orbitz pay hotels for rooms in advance and then turn around
and resell them to travelers. Instead, Orbitz accesses the
inventory databases of the hotels it has contracted with,
checks availability for dates when the traveler desires to
stay at the hotel, and makes a reservation request to the
desired hotel in
the traveler's name if a room is available for booking.
When a traveler selects an available hotel room, Orbitz's
website displays the total cost of the room to the traveler,
which consists of two components: (1) the " 'average
price per night,'" which is the " [n]et
[r]ate" the hotel will receive plus a markup amount
which will be retained by Orbitz; and (2) " 'taxes
and fees,'" which includes a tax recovery charge
(the estimate of taxes payable on the hotel's net rate)
and any additional service fees or other applicable fees.
[¶5] A traveler who books a hotel room
through Orbitz pays Orbitz for a room upfront. Upon
confirmation of the hotel booking, the hotel usually sends a
confirmation number to Orbitz confirming the booking and the
name of the traveler and Orbitz sends an email confirmation
to the traveler. When the traveler arrives at the hotel, the
hotel confirms the existence of the booking. If the hotel is
unable to accommodate the reservation for any reason, the
hotel, not Orbitz, is responsible for finding alternative
accommodations for the traveler. After the traveler checks
into a room, the hotel collects payment from Orbitz for the
hotel's " [n]et [367 Wis.2d 598] [r]ate," the
applicable taxes due on the " [n]et [r]ate," and
any hotel-imposed fees. The hotel then remits the taxes owing
on the " [n]et [r]ate" to the appropriate taxing
authority. The markup amount is retained by Orbitz. During
the time periods at issue in this case (2001-2006), retail
sales tax was not collected from travelers on the markup
amount, nor was retail sales tax remitted to DOR by Orbitz on
the markup amounts Orbitz collected.
[¶6] In 2008, DOR notified Orbitz that
Orbitz owed an additional $111,253.39 in retail sales tax for
the tax periods ending December 31, 2001, through December
31, 2006, on the markup amounts Orbitz collected as part of
its reservation facilitation services. DOR asserted that
Orbitz is an " 'internet lodging provider'"
that provides lodging throughout Wisconsin and as such, the
markup amount retained by Orbitz is subject to taxation under
Wis. Stat. § 77.52(2)(a)1. The amount assessed against
Orbitz included the tax DOR maintained was owing on the
markup amounts retained by Orbitz, as well as interest and
late filing fees.
[¶7] Orbitz petitioned DOR for a
redetermination of its tax liability, which DOR denied.
Orbitz appealed DOR's denial of its petition to the
Commission. Both Orbitz and DOR moved the Commission for
summary judgment. The Commission granted Orbitz's motion
and denied DOR's motion. The Commission concluded that
Orbitz does not provide a service that is taxable under Wis.
Stat. § 77.52(2)(a)1, stating, " [Section]
77.52(2)(a) does not clearly impose a tax on the markup
compensation Orbitz receive[d] from its customers for its
reservation facilitation services; such ambiguity must be
resolved in [Orbitz's] favor and against extending the
reach of the taxing authority."
Wis.2d 599] [¶8] DOR sought judicial review
of the Commission's decision. The circuit court affirmed