On April 30, 2021, the Court of Appeals of Maryland held in Travelocity.com LP v. Comptroller of Md., No. 14, 2021 Md. LEXIS 200 (Apr. 30, 2021), that the taxpayer, an online travel company, was not required to collect and remit state sales and use tax prior to the enactment of Maryland’s accommodations intermediary law in 2015. This ruling by the state’s highest court, which overruled the lower courts’ decisions, helps clarify the “pre-accommodations intermediary law” tax obligations of online travel companies, and may also be helpful in understanding the impact of marketplace facilitator law enactments more generally.

By way of background, while state sales and use tax laws vary widely, the “seller” of a taxable good or service, such as a taxable accommodation, must generally collect sales or use tax from the purchaser and remit the tax to the state.  With the increased prominence of online marketplaces, including online travel companies, states have sought to require the platform itself to collect and remit the tax. This can be done either by asserting this position in audits and litigation, which is what led to the controversy in Travelocity, or legislatively by enacting “marketplace facilitator” laws.  Marketplace facilitator laws, which have now been enacted in every state that imposes a sales or use tax, effectively shift state sales and use tax collection and remittance obligations from the seller of the taxable good or service to the marketplace or platform that facilitates the sale of the taxable good or service, either by expressly imposing a collection and remittance obligation on a marketplace facilitator or by treating marketplace facilitators as “retailers” otherwise required to collect and remit sales or use tax.  Many state marketplace facilitator laws apply broadly to platforms facilitating the sale of any type of taxable good or service, but some marketplace facilitator laws are more targeted, such as Maryland’s accommodations intermediary law, enacted in 2015, which applies specifically to platforms conducting certain online travel services.  (We note that Maryland also subsequently adopted a general marketplace facilitator law in 2019 that applies more broadly to platforms that facilitate sales of taxable goods and services.)

The Travelocity decision involved tax years that were prior to the enactment of Maryland’s accommodations intermediary law.  Because there was no accommodations intermediary or other marketplace facilitator law on the books during the tax years at issue, the Comptroller instead argued that Travelocity qualified as a “vendor” of hotel rooms and rental cars under the then-existing state statute, and was therefore required to collect and remit sales tax on the total charge it collected from the consumer.  In challenging the Comptroller’s assessment, the taxpayer pointed to the 2015 amendment enacting the accommodations intermediary law, asserting that it could not have been a vendor before the law change which expressly expanded the definition of vendor to include an “accommodations intermediary.”

The dispute, therefore, was whether Travelocity was a “vendor” who “sold” or “delivered” the hotel and car rental reservations during the tax years at issue.  While the lower courts ruled in favor of the Comptroller, on appeal, the Maryland Court of Appeals ruled that Travelocity was not required to collect and remit the state’s sales and use tax on the total charge collected from consumers during the tax years at issue because it was not a vendor as statutorily defined under the Maryland tax code. Rather, Travelocity merely “facilitated” reservations with third-party agencies for the right to occupy a hotel room or rent a vehicle during the tax years at issue.

In its decision, the Court explained that Travelocity did not acquire “title or possession” to the hotel room or rental car, as required for a “sale” to occur under the plain language of the pre-accommodations intermediary statute. Travelocity’s contracts bolstered this argument and further clarified that Travelocity did not purchase or acquire inventory in the hotel rooms and rental vehicles, nor accept any risk of loss for the reservations. Therefore, construing the contracts as a whole, Travelocity could not have “sold” the rooms under Maryland law.  Further, as corroborated by the contracts, the purpose of the agreements was for Travelocity to facilitate hotel and car reservations for the benefit of the hotel and car rental agencies and “to broaden the distribution of [the third-party agencies’] travel products and services through Travelocity.”  The Court described the relationship between Travelocity and the third-party agencies as analogous to a “postal carrier who delivered, for a fee, items from a seller to a buyer while at the same time collecting payment from the buyer to return to the seller.”

The Court then turned to the relevance of the superseding 2015 legislation. It concluded that the subsequent inclusion of accommodations intermediary to the definition of vendor demonstrated that intermediaries such as Travelocity were not within the scope of the original definition of a vendor. The court noted that the legislative history confirmed that the amendment was passed with the stated purpose of “altering the definition of ‘vendor’ under the State sales and use tax to include an accommodations intermediary[.]” 2016 Md. Laws Ch. 3 (H.B. 1065 & S.B. 190 (2015)); S.B. 190 (2015) Fiscal and Policy Note at 1. If the amended statute were construed to have the same meaning as the original statute, the additional term “accommodations intermediary” would be rendered surplusage — an unfavorable result in statutory interpretation.

Overall, the Travelocity decision has strengthened the position that the enactment of a marketplace facilitator law does not retroactively broaden the obligations of facilitators. The court observed that “[t]ravel industry practices have long informed the developments of the State’s tax legislation,” and that “Travelocity’s business and technological acumen preceded the State’s tax legislation, until the General Assembly ‘caught up’ with the 2015 amendment.”  While the court’s holding is limited to the accommodations intermediary law, this case could have relevance outside the online travel company context, as it generally provides support for an argument that marketplace facilitator laws were intended to change the tax collection and remittance obligations of marketplace facilitators and thus should be prospectively applied, and states should not impose tax collection and remittance obligations on platforms for years before a marketplace facilitator law was enacted.

Contact the Authors: Linsday LaCava, Nicole Ford, Varuni Balasubramaniam