In a recent decision, the Mississippi Supreme Court reversed the trial court’s ruling that online travel companies (“OTCs”), such as Priceline.com and Expedia, were hotels within the meaning of Mississippi’s hotel tax. The decision reversed a judgment of more than $50 million against the OTCs. Priceline.com LLC et al. v. Lynn Fitch, Attorney General of the State of Mississippi ex rel. Mississippi, case number 2021-CA-00868-SCT (MS. Sup. Ct. Sept. 28, 2023).

The Facts: OTCs, including Priceline.com, Expedia, and Travelocity.com, are technology companies that operate websites enabling travelers to, among other things, research destinations, plan trips, and request reservations from airlines, hotels, and rental car companies.

The OTCs facilitate bookings from travel suppliers, including traditional hotels. When a consumer books a hotel room through an OTC, the OTC charges the consumer’s credit card at the time the hotel issues a reservation. The contracts between hotels and OTCs provide that OTCs are responsible for collecting a “net rate” (the amount to be paid to the hotels) and applicable taxes from the consumers, and if the consumer does not cancel a reservation, the hotel will later collect the net rate and tax from the OTC and remit the tax to the appropriate tax authorities. The State alleged that the OTCs themselves were required to collect and remit sales tax for each rental of a hotel room to consumers and that tax should be charged on the gross amount paid by the consumer, as opposed to the net rate.

The trial court granted the State’s motion for summary judgment finding that the OTCs were “hotels” subject to Mississippi’s hotel tax. In a subsequent ruling, the trial court awarded the State over $11 million for unremitted tax and applied a 300 percent penalty. The trial court also awarded the State interest. In total, the trial court found the OTCs liable to the State in excess of $50 million.

The Decision: Though many issues were raised on appeal, the Mississippi Supreme Court decided only the principal issue—whether OTCs are subject to the sales tax levied against hotels. The Court looked to the definition of “hotel” and determined that in order for OTCs to be “hotels” “they must (1) be ‘engaged in the business of furnishing or providing one or more rooms intended or designed for dwelling[,] lodging or sleeping purposes’ and (2) they must be ‘known to the trade as such[.]’”

The Court found “that the OTCs meet neither of these requirements and, therefore, are not subject to this tax.” With respect to the first requirement, the Court reasoned that OTCs “provide an intermediary service between hotels and customers…. While a customer may reserve a room through an OTC, it is the physical hotel that furnishes or provides a room for the customer when they arrive.” As for the second requirement (which the Court did not need to decide because its ruling on the first requirement was dispositive), the Court noted that “it appears very clearly from the record” that OTCs are not known to the trade as hotels.

In a dissenting opinion, Chief Justice Michael K. Randolph argued that OTCs fall under the statute’s definition of hotel: “While I agree that if one opened the Yellow Pages, one would not see a listing for an OTC hotel, those companies are judged by the language of the statute.”