TRAVELOCITY.COM LP, PRICELINE.COM INCORPORATED, HOTELS.COM, LP, HOTWIRE, INC., EXPEDIA, INC., ORBITZ, LLC, AND TRIP NETWORK, INC. (d/b/a CHEAPTICKETS.COM), Appellants (Petitioners),
WYOMING DEPARTMENT OF REVENUE, Appellee (Respondent)
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W.R.A.P. 12.09(b) Certification from the District Court of Laramie County. The Honorable Peter G. Arnold, Judge.
Representing Appellants: Lawrence J. Wolfe, P.C., and Brynn A. Hvidston of Holland & Hart, LLP, Cheyenne, Wyoming; Jeffrey A. Rossman of McDermott Will & Emery LLP, Chicago, Illinois. Argument by Mr. Rossman.
Representing Appellee: Peter K. Michael, Wyoming Attorney General; Martin L. Hardsocg, Deputy Attorney General; Cathleen D. Parker, Senior Assistant Attorney General. Argument by Ms. Parker.
Before KITE, C.J., and HILL, VOIGT,[*] BURKE, and DAVIS, JJ.
[¶1] Appellee Wyoming Department of Revenue (Department) directed Appellants, which are on-line travel companies (OTCs), to collect and remit tax on the total amounts they collected from customers booking hotel rooms in Wyoming. Appellants appealed the order to the State Board of Equalization (SBOE), which upheld it. The OTCs petitioned the First Judicial District Court for review, and it certified the case to this Court, which accepted the certification.
[¶2] Appellants argue that Wyoming's sales tax statutes do not reach the markup they charge for a variety of reasons. They contend that application of Wyoming sales tax to them violates the Dormant Commerce Clause, the Equal Protection Clause, and the Due Process provisions of the United States Constitution. They also urge us to find that it violates the federal Internet Tax Freedom Act. We affirm the State Board of Equalization.
[¶3] Appellants raise the following issues, which we have rephrased and regrouped somewhat:
1. Did the SBOE err in finding that the full amount paid to the OTCs for a reservation of a hotel room in Wyoming was taxable by the Department because:
a. It concluded that the OTCs are " vendors" of lodging services under Wyoming Statute § 39-15-101 et. seq .?
b. It concluded that the amount the OTCs consider to be " online reservation facilitation fees" were instead part of the sales price for " lodging services" under Wyoming's sales tax?
c. It concluded that the amount the OTCs believe to be a service fee is taxable in Wyoming?
2. Does the Department's imposition of sales tax on the full amount the OTCs collect violate the Dormant Commerce Clause of the United States Constitution?
3. Does imposition of the sales tax on the full amount the OTCs collect violate the Equal Protection Clause of the United States Constitution?
4. Does imposition of the sales tax on the full amount the OTCs collect violate the Due Process Clause of the United States Constitution?
5. Does imposition of the sales tax violate the Internet Tax Freedom Act?
[¶4] The Department generally identifies the same issues, although it frames them in the " deep issue" format recommended by one legal scholar.
[¶5] The facts of this case are not in dispute. The OTCs are on-line travel companies. They host travel websites through which the public may book hotel rooms, airline reservations, rental cars, and other travel-related services. This appeal involves only tax on the Wyoming hotel rooms reserved through their websites.
[¶6] The parties agree that none of the OTCs, their employees or their servers are located in Wyoming. They do not own or control any hotels in this state.
[¶7] Hotels typically employ revenue managers who set and adjust room rates and select the distribution channels necessary to secure reservations. If they anticipate a need to use intermediaries like the OTCs to fill rooms, they enter into agreements to allow them to market reservations for a certain number of rooms at a certain rate. The hotel controls the price and availability of rooms. Major hotel brands have a central reservation system through which the OTCs can determine the rates and available rooms they may offer to potential guests. Hotels without central reservation systems can use the OTCs' extranet service to upload this data. Hotels can increase or decrease the number of reservations available to OTCs or close them out entirely.
[¶8] The OTCs collect a wide variety of hotel information and publish it on their websites so that travelers can plan trips through one source. Customers can search for lodging using a variety of parameters. The customer must accept the OTCs' terms and conditions, as well as the OTC/hotel cancellation policies and other rules and restrictions.
[¶9] There are five " models" by which hotel rooms are rented. The first three are not at issue in this appeal. First, the hotel may simply rent the room itself, and the entire transaction is taxed at a maximum of 10% under current rates. Second, a travel agent may book the room for a traveler. In that kind of transaction, called the " agency model," the hotel charges the traveler for the room and pays tax on the entire room rental, but remits a commission to the travel agent. The amount of the agent's commission is therefore taxed, because it is paid from the total room rate. The modified merchant model, the third variant, is similar to the agency model. In it, the customer pays the OTC to occupy a room with a credit card, and the OTC also collects tax on the full amount of the rental. The OTC then remits all of the funds received to the hotel, which pays the OTC a commission, and the hotel pays tax on the entire amount paid by the customer to the OTC.
[¶10] The controversy in this case involves the merchant model, which comprises
the majority of the OTCs' business. In it, the OTC collects the net rate the hotel has agreed upon, the amount of tax estimated on the net rate, and what the OTCs call a " service" or " facilitation" fee. The putative service fee is a markup from the net rate the hotel has agreed to plus the tax on that base rate. The parties sharply disagree as to what this difference should be called because it may affect the outcome, and in an effort to use neutral terminology, we will refer to it as " the markup." If the guest utilizes the reservation, the hotel bills the OTC, and the OTC pays it the net rate plus the estimated tax. The OTC retains but does not pay Wyoming sales tax on the markup. The hotel pays the state or local taxing authority (in this case Wyoming) the tax due on its net rate.
[¶11] Under the merchant model, the hotel is not informed of the total amount paid to the OTC by the customer for a reservation. The customer is not informed of the net rate the hotel has agreed upon or the amount of tax collected upon it. Without conducting an audit, state and local taxing authorities, including the Wyoming Department of Revenue, cannot determine the basis for the tax collected on each transaction. Only the OTC knows how much its markup is.
[¶12] The " opaque" model is also used by certain of the OTCs. This is a variant of the merchant model. In it, the customer does not learn the identity of the hotel until the reservation is made and payment is received. Reservations cannot generally be cancelled and it is nearly impossible to obtain a refund. The OTC remits the net rate and the estimated tax on that amount before the date of the traveler's stay. The OTC has the exclusive right to make exceptions to the no-refund policy. The OTCs retain the markup and do not pay sales tax on it, so the tax issues are the same as with the merchant model, and they will not be discussed separately.
[¶13] The following chart illustrates the Department's view of the five models, utilizing a hypothetical net rate of $80.00, tax rate of ten percent, and a hypothetical difference between net rate and what the customer actually pays.
Gross Amount Paid
Net Rate Charged by
| || |
Direct Rental by
| || || |
Agent or OTC)
| || || |
| || || |
In this example, the OTCs would receive $20.00 in untaxed revenue, resulting in a $2.00 difference in tax paid from that paid under the other models.
[¶14] The parties agree that although the hotel is obligated by its contract with the OTC to provide a room of a certain type and quality, the hotel assigns the room and charges for any services not included in the rate, including meals, health club access, etc. The OTC has no voice in the room assignment. The parties also agree that the customer can only obtain a refund from the OTC under the merchant model -- the hotel cannot grant a refund.
[¶15] The OTCs have been very successful, and their success has not gone unnoticed by state and local taxing authorities. See, e.g., Scott M. Susko and Lucia Cucu, State and Local Governments Turn to Online Business for Tax Revenue in an Attempt to Remedy Budget Shortfalls, 19 J. Multistate Taxation and Incentives (Sept. 2009). As will be addressed in further detail, the taxing authorities generally argue that tax should be paid to them based on the gross amount the customer pays for a room, while the OTCs contend that the markup is not taxable by the state or local government entity in which the hotels are located because it is a service fee.
[¶16] The Administrator of the Wyoming Department of Revenue's Excise Tax Division met with Natrona County officials, several interest groups, and representatives of Appellees Orbitz and Travelocity in February of 2010. The OTCs explained the merchant business model and expressed their view that Wyoming could not tax what they call the service fee on a hotel transaction. The Department thereafter directed a number of OTCs to license with Wyoming as vendors and to collect and remit taxes on the full amount paid by customers who reserve rooms in Wyoming.
[¶17] The OTCs appealed the Department's decision to the SBOE. The parties were able to stipulate to some of the facts and to the record to be considered by the SBOE, and therefore simply argued the case rather than presenting live testimony. In a thoughtful 38-page decision containing detailed findings of fact and conclusions of law, the SBOE concluded as follows:
1. Wyoming's sales tax statutes require the Department to impose tax on the entire amount paid by the consumer for a reservation. The statutes also require OTCs to collect this tax and remit it to the Department.
2. Taxation of the entire amount paid by the customer for the reservation does not violate the Dormant Commerce Clause of the United States Constitution.
3. Wyoming's sales tax statutes are not void for vagueness.
4. Wyoming's sales tax statutes do not violate the Due Process or Equal Protection clauses of either the federal or Wyoming constitutions.
5. Wyoming's sales tax statutes do not violate the Internet Tax Freedom Act.
6. The Department is not equitably estopped to collect sales tax on the entire amount paid for the reservation because it has not collected it in the past.
[¶18] Based upon these conclusions, the SBOE affirmed the Department's decision that the OTCs were required to register as vendors and to remit sales tax upon the entire amount paid by customers who reserve lodgings in Wyoming. The OTCs timely petitioned the district court for Laramie County for review of the SBOE decision. The parties then moved the district court for an order certifying this case for direct review under Wyoming Rule of Appellate Procedure 12.09(b). The district court concluded that the case met the criteria set forth in the rule and certified it to this Court, and we accepted it.
I. Issues Relating to Wyoming's Sales Tax Statutes
[¶19] The first set of issues presented by the OTCs requires us to interpret Wyoming's sales tax statutes to determine whether the legislature intended to tax the portion of the gross room rate we have called the markup. The construction and interpretation of statutes applied by an agency is a question of law, and our standard of review is de novo, as it is for all issues of statutory interpretation. Lance Oil & Gas Co. v. Wyo. Dep't of Revenue, 2004 WY 156, ¶ 3, 101 P.3d 899, 901 (Wyo. 2004) (quoting Wyodak Res. Dev. Corp. v. Wyo. Dep't of Revenue, 2002 WY 181, ¶ 9, 60 P.3d 129, 135 (Wyo. 2002)); Rock v. Lankford, 2013 WY 61, ¶ 17, 301 P.3d 1075, 1080 (Wyo. 2013) (citing Redco Const. v. Profile Props., LLC,
2012 WY 24, ¶ 26, 271 P.3d 408, 415 (Wyo. 2012)).
[¶20] As we have observed:
In interpreting statutes, our primary consideration is to determine the legislature's intent. All statutes must be construed in pari materia and, in ascertaining the meaning of a given law, all statutes relating to the same subject or having the same general purpose must be considered and construed in harmony. Statutory construction is a question of law, so our standard of review is de novo. We endeavor to interpret statutes in accordance with the legislature's intent. We begin by making an inquiry respecting the ordinary and obvious meaning of the words employed according to their arrangement and connection. We construe the statute as a whole, giving effect to every word, clause, and sentence, and we construe all parts of the statute in pari materia . When a statute is sufficiently clear and unambiguous, we give effect to the plain and ordinary meaning of the words and do not resort to the rules of statutory construction. Moreover, we must not give a statute a meaning that will nullify its operation if it is susceptible of another interpretation.
Moreover, we will not enlarge, stretch, expand, or extend a statute to matters that do not fall within its express provisions.
Only if we determine the language of a statute is ambiguous will we proceed to the next step, which involves applying general principles of statutory construction to the language of the statute in order to construe any ambiguous language to accurately reflect the intent of the legislature. If this Court determines that the language of the statute is not ambiguous, there is no room for further construction. We will apply the language of the statute using its ordinary and obvious meaning.
Whether a statute is ambiguous is a question of law. A statute is unambiguous if reasonable persons are able to agree as to its meaning with consistency and predictability, while a statute is ambiguous if it is vague or uncertain and subject to varying interpretations.
Redco Const., ¶ 26, 271 P.3d at 415-16 (citations & internal quotation marks omitted).
A. Wyoming's Taxation System
[¶21] Before determining the scope of Wyoming's sales tax, we must first review the statutory scheme and the Department's rules and regulations. The applicable statute imposes tax on " [t]he sales price paid for living quarters in hotels, motels, tourist courts and similar establishments providing lodging service for transient guests." Wyo. Stat. Ann. § 39-15-103(a)(i)(G) (LexisNexis 2013). Wyoming law also permits counties to impose an additional excise tax of up to four percent on " the ...