Seven requirements for exemption from Calif. registration law

By Mark Pestronk
Mark PestronkQ: At a recent trade show seminar, an executive of a major host agency stated that, if a host agency is registered under the California Seller of Travel Law, then the agency's independent contractors (or hosted agents) do not need their own Seller of Travel registrations. Is that a true statement? If not, what do hosted agents need to do in order to comply with the California law? What if the hosted agents are located outside California? What about other states' seller of travel laws?

A:
Most hosts and hosted agents probably believe what the executive said. However, the California law is complicated; some hosted agents are exempt from registration, but many are not.

Hosted agents who are located in California or who, from a location outside California, sell to Californians are exempt from registering as California Sellers of Travel only if they do all seven of the following:

1. Sell travel as sole proprietors, not through their own corporations, limited liability companies or partnerships (although you can use a trade name such as "Jane Jones trading as Ships Ahoy") So if you are incorporated, for example, you cannot be exempt, and we do not even have to discuss the other factors.

2. Have a written contract with a host registered in California. So if your host agency has no written contracts, then you need to register if you are in California or sell to Californians.

3. Refrain from selling any travel except through the registered host. Thus, you cannot deal with suppliers unless you do so through the host; nor can you work with an unregistered Seller of Travel.

4. Use the registered host's supplier appointments in all sales. You cannot use your own appointments, if you have any.

5. Refrain from keeping fees paid by the traveler. You can charge fees, but you must turn them over to the host, which would normally add them to the commission split.

6. Require clients to pay either the registered host or the suppliers directly, instead of paying you. This protects California consumers against unscrupulous sellers who may steal the consumers' money.

7. Disclose, during each sale, that you are acting on behalf of a registered seller of travel, and disclose the host's name, address, phone number and registration number.

The first and third requirements are somewhat at odds with the tax advice given by many experts, who advise that it helps avoid IRS reclassification of independent contractors as employees if the contractors are incorporated and work for multiple hosts. However, I do not think that operating as a sole proprietor or working only with one registered host presents a reclassification problem, so qualifying for the California exemption while still remaining an independent contractor under IRS rules is quite possible.

Under the California law, it makes no difference if you are located outside the state, as long as you sell travel to Californians. The state has gone after many unregistered out-of-state sellers.

Interestingly, if you sell only resorts and all-inclusives but not air travel or cruises, you do not fit the definition of a "Seller of Travel" under the California law, so you do not have to register or worry about being exempt.

In my next column, I will cover hosted-agent exemptions under other states' laws.

Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email him at mark@pestronk.com. 
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