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Orbitz, LLC v. Indiana Department of State Revenue

Tax Court of Indiana

December 20, 2016

ORBITZ, LLC, Petitioner,
v.
INDIANA DEPARTMENT OF STATE REVENUE, Respondent.

          ATTORNEYS FOR PETITIONER: HOWARD E. KOCHELL RANDAL J. KALTENMARK ZIAADDIN MOLLABASHY BARNES & THORNBURG LLP Indianapolis, IN ELIZABETH B. HERRINGTON CATHERINE A. BATTIN MEGAN THIBERT-IND JEFFERY A. ROSSMAN MCDERMOTT WILL & EMERY LLP Chicago, IL

          ATTORNEYS FOR RESPONDENT: GREGORY F. ZOELLER ATTORNEY GENERAL OF INDIANA JESSICA R. GASTINEAU DEPUTY ATTORNEY GENERAL Indianapolis, IN

          ORDER ON PARTIES' CROSS-MOTIONS FOR SUMMARY JUDGMENT

          Martha Blood Wentworth Judge.

         [¶1] Orbitz, LLC challenges the Indiana Department of State Revenue's assessments of Indiana sales and innkeeper's taxes for the January 1, 2004, through December 31, 2006, period (the "period at issue"). The matter is currently before the Court on the parties' cross-motions for summary judgment.[1] The Court restates the dispositive issue as whether the Department erred in issuing sales and innkeeper's tax assessments against Orbitz based on the retail rather than the wholesale rate of Indiana hotel rooms.[2] The Court finds in favor of Orbitz.

         FACTS AND PROCEDURAL HISTORY

         [¶2] Orbitz is an online travel company headquartered in Chicago, Illinois that provides a variety of travel-related services and information to customers through its Orbitz.com website. (Pet'r & Resp't Jt. Stip. Facts ("Jt. Stip.") ¶¶ 1-2, 30.) For instance, customers may use the Orbitz website to search for, compare, and ultimately reserve airline tickets, car rentals, lodging, or a variety of other travel products. (See Jt. Stip. ¶¶ 1, 30, 32.)

         [¶3] During the period at issue, one of the Orbitz regional market managers traveled to Indiana to cultivate relationships with hoteliers. (See Jt. Stip. ¶¶ 6-9.) The regional market manager and the hoteliers subsequently executed contracts that allowed Orbitz to provide its services for several Indiana hotels in Allen, Clark, Floyd, Harrison, Jefferson, Marion, Scott, and Shelby Counties (the "Hotel Listing Agreements"). (See Jt. Stip. ¶¶ 10, 19-23, Ex. 1.)

         [¶4] According to the terms of the Hotel Listing Agreements, the hoteliers delegated to Orbitz some of their day-to-day responsibilities, including certain marketing, tax collecting, payment processing, reservation, and customer service functions. (See Jt. Stip., Ex. 1 ¶¶ 5-7.) The hoteliers also established wholesale rates for the hotel rooms, agreed not to disclose the wholesale rates to the public, and agreed to allow Orbitz to charge customers at rates greater than the wholesale rates when it facilitated pre-paid reservations. (See Jt. Stip., Ex. 1 ¶ 5(a).) Orbitz, in turn, agreed to promote the Indiana hotels on its website, to facilitate pre-paid reservations for the hotels through its secure private communications network (the "extranet"), and to collect sales and innkeeper's taxes from customers based on the wholesale rate of the hotel rooms alone (i.e., the "tax recovery charge"). (See Jt. Stip., Ex. 1 ¶¶ 2, 5(a).)

         [¶5] Orbitz, like other third-party travel intermediaries, used the "merchant model" to facilitate the pre-paid reservations.[3] (See Jt. Stip. ¶ 33.) Consequently, Orbitz's facilitation of pre-paid reservations typically involved several, nearly simultaneous, integrated steps:

1) Orbitz advertised Indiana hotels on its website; after the customer selected a room to reserve and agreed to certain policies, the following two separate charges were displayed to the customer:
i. the "subtotal" (i.e., the "retail rate") that consisted of the combined amount of the wholesale rate and Orbitz's facilitation fee; and
ii. the "taxes and fees, " which reflected the total of the tax recovery charge and Orbitz's additional service fee;
2) Orbitz transmitted the customer's reservation request to the hotel through the extranet; the hotel accepted the reservation by sending Orbitz a confirmation number through the extranet; Orbitz provided the confirmation number to the customer and charged the customer's credit card for an amount totaling the retail rate and the taxes and fees; Orbitz was the merchant of record for the transaction;
3) the customer subsequently checked into the hotel and, upon check-out, paid for incidental charges only (e.g., room ...

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