Updated: Hawaii judge rules OTAs owe the state $70 million in tax penalties

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Hawaii tax appeal court judge Gary Chang has ruled that online travel agencies (OTAs), including Expedia, Orbitz, Travelocity and Priceline, owe approximately $70 million in tax penalties, along with interest on those penalties, for failing to pay the state's general excise tax over a 10-year period.

The March 18 ruling concerning the $70 million in penalties follows a January ruling by Judge Chang ordering the OTAs to pay more than $158 million in unpaid Hawaii general exercise taxes on state hotel rooms covering a period from 2000 to 2011, according to a statement released by the Hawaii attorney general's office.

The court ruling could result in an additional $20 million in future general excise taxes for Hawaii from OTAs annually.

"The [OTAs] did not produce any advice from legal counsel or accounting professionals advising that their position was reasonable and that they did not have to pay the state's general excise taxes," Hawaii Attorney General, David Louie, said in the statement. "The burden is on taxpayers to demonstrate that they had reasonable cause not to file or pay the taxes, and we believe the court correctly found that the [OTAs] failed to prove their case."

Expedia reported last month that its fourth-quarter net income fell 90% from a year earlier, to $6.73 million, on a one-time, $110 million legal-reserves charge stemming from the earlier Hawaii decision.

The Travel Technology Association, the trade group formerly known as the Interactive Travel Services Association, which represents the OTAs, says that the companies will appeal the decision and try to get it overturned by an appellate court.

“If allowed to stand, the lower court’s decision would single-handedly undermine the Hawaii tourism industry and tell visitors to go to Mexico or the Caribbean instead,” the group said in a statement.

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