Sales & Use Tax Blog

Arizona Sales Tax for Online Booking Agencies Upheld by Arizona Supreme Court

A new Arizona sales tax imposed by the Arizona Supreme Court calls for travel agencies to pay taxes to 11 cities. Those cities include Phoenix, Apache Junction, Chandler, Flagstaff, Glendale, Mesa, Nogales, Prescott, Scottsdale, Tempe and Tucson. The ruling comes after a 2013 effort in which the aforementioned cities requested that travel booking be assessed for taxes over an eight-year period ending April 2009. Although the fight to collect sales taxes during this time frame was sent back down to a lower court, it is believed that the cities are owed “millions of dollars.” With the Arizona sales tax rate at 5.6%, the hotel booking sites could be subject to pay a large portion back if the court rules in favor of the cities.

In efforts to collect on back taxes, the argument used in court was that a 2002 Scottsdale court ruling established online travel agencies acted as brokers and therefore generate income taxable subject to tax by the state. To support their claim, a 2007 letter from the City of Peoria to a key member in the online travel industry expressing the same material in the 2002 ruling was used as well. However the judge did not see that as substantial support to their assertion stating, “one city’s ruling for one taxpayer doesn’t provide clear notice to all online travel companies on behalf of all the cities.”

The companies affected by this Arizona Supreme Court ruling include: Orbitz, Trip Network, Expedia, Priceline.com, Travelweb, Travelocity, Hotels.com, Hotwire and Internetwork Publishing. The Attorney representing the Arizona cities, John Crongeyer admits that the hotels booked through the online agencies have already paid their portion of Arizona sales tax, but the booking sites have failed to do so. Arizona’s Supreme Court was able to rule in favor of the cities due to a state law that categorizes booking agencies as brokers for hotels by offering services separate from providing lodging. Due to this position, the brokers as well are subject to Arizona sales tax.

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