Mark Pestronk
Mark Pestronk

Q: At our agency, I want to set up a new division that will be a sort of simplified host agency. The division will generate cruise and tour leads and then just farm them out to independent contractors (ICs), who will then take care of collecting payment, paying suppliers, dealing with client problems and then paying us a fee for the referral. Someone told me that ICs can't collect payment unless they are registered under the various states' seller of travel laws. Is that correct? If so, how can we get around those prohibitions, since I'd rather not force my ICs to register as sellers of travel?

A: Only California, Florida and Washington state have laws exempting ICs from registration if they meet certain criteria. The other states that have registration laws, Hawaii and Iowa, do not distinguish between agencies and ICs, so ICs selling there need to be registered.

Under the California statute, once your agency is registered, your ICs can be exempt if they meet seven criteria, and one of those is that the IC "requires the passenger to pay all consideration for air or sea transportation or other travel services directly to the air carrier or ocean carrier or to the registered seller of travel."

In other words, the IC cannot be exempt if the IC deposits any client money in his or her own account. On the other hand, if the IC pays the supplier using the client's credit card, there is no problem.

Under the Florida law, an IC of a registered seller can be exempt if, among other things, the IC, "does not receive a fee, commission or other valuable consideration directly from the purchaser for the sale of travel." Whether the term "other valuable consideration" includes money that will be used to pay suppliers is unclear, but there is certainly no prohibition on having the IC pay suppliers using the client's credit card.

Washington's statute requires that if your agency is registered, ICs do not have to register if "all money for travel services ... is collected in the name of the registered seller of travel and processed by the registered seller of travel." So, unlike under the other statutes, exempt ICs cannot pay suppliers directly using client credit cards.

Keep in mind that these laws apply to sales to residents of the named states, regardless of where the IC is located. So, assuming that you will allow the ICs to deposit client checks, you can deal only with ICs who will agree not to handle clients in Florida, California and Washington unless they register as sellers of travel there or (in the case of California and Florida) they agree to pay suppliers using client credit cards only.

Finally, let me add a word of caution: The money-handling criterion is only one of several requirements that host-IC relationships must meet for the IC to be exempt, and you need to be familiar with each state's laws so that you can ensure that your sales model complies.

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