Q: I have heard that an independent contractor (IC) is not allowed to charge fees to clients and still be exempt from having to register as a "seller of travel" in the states that have registration requirements. Is that correct?A:
It is true that an IC who otherwise qualifies for an exemption under a seller of travel registration law could lose his or her exempt status by charging a fee and keeping it. However, as with most laws, there are complications.
There are five states that have seller of travel registration laws: California, Florida, Hawaii, Iowa and Washington. Nevada and Ohio used to have such laws, but they were repealed.
Two of the states -- Hawaii and Iowa -- have laws that have no exemptions for ICs. The laws apply to "travel agencies," and while it is not clear whether ICs are travel agencies, the laws do not prohibit any seller from charging fees.
Let's review the other states:• California:
There are no less than seven requirements for exemption, and an IC must meet all seven in order to be exempt. One of the seven is that the IC, "does not receive any consideration for air or sea transportation or other travel services from the passenger." So this rules out charging a fee. However, if the fee is imposed by the California-registered host and merely collected by the IC on behalf of the registered host, I think that you could get around this requirement.
For example, if the IC tells the client that "my host charges $35 per ticket, so I need to collect that from you," and then the IC transmits the client's credit card information to the host for processing, the IC does not "receive any consideration ... from the passenger." After the host collects the fee, the host would be free to share all or part of it with the IC.
Why can a host charge a fee while an IC may not? The reason is that funds collected by the registered seller are protected by a trust account or bond, while funds collected and deposited by an IC have no protection.• Florida:
An exempt IC must "not receive a fee, commission or other valuable consideration directly from the purchaser for the sale of travel." The word "directly" is obviously key, as a prohibition on "directly" receiving implies that the IC can collect the fee indirectly.
For example, an IC can receive a fee indirectly if, as is the case in California, the fee is collected in the host's name and charged by the host to the client's credit card, even if the host remits all or part of the fee to the IC at the usual interval for commission splits.• Washington:
An IC need not "be registered if: ... all money received for travel services by the ... independent contractor or outside agent is collected in the name of the registered seller of travel and processed by the registered seller of travel as required under this chapter."
So, an IC can collect a fee "in the name of" the registered host and have the host "process" and deposit it into the required trust account. As with California and Florida, I see no prohibition on having the host remit the fee to the IC after collection.
In a nutshell, I believe that an IC would be safe in collecting a fee that is: a) imposed in the host's name; b) charged using the host's credit card merchant account; and c) deposited into the host's trust account (if one is required), even if the host later remits the fee to the IC.