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Wisconsin Dep't of Revenue v. Orbitz, L.L.C.

Court of Appeals of Wisconsin

February 11, 2016

WISCONSIN DEPARTMENT OF REVENUE, PETITIONER-APPELLANT,
v.
ORBITZ, L.L.C., RESPONDENT-RESPONDENT, WISCONSIN TAX APPEALS COMMISSION, RESPONDENT

         Submitted on Briefs August 14, 2015

         APPEAL from an order of the circuit court for Dane County: JOHN C. ALBERT, Judge. Cir. Ct. No. 2014CV1708.

         On 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.

         On 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, Illinois.

         Before Kloppenburg, P.J., Sherman and Blanchard, JJ.

          OPINION

Page 373

         [367 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).[1] For the reasons discussed below, we affirm.

         BACKGROUND

          [¶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

Page 374

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 mark[]up 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."

          [367 Wis.2d 599] [¶8] DOR sought judicial review of the Commission's decision. The circuit court affirmed ...


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