Opinion
NO. 2023 CA 0069
04-17-2024
Kimberly L. ROBINSON, Secretary of the Department of Revenue for the State of Louisiana and City of New Orleans Department of Finance v. PRICELINE.COM, INCORPORATED, Travelweb, LLC, Trip Network, Inc., Orbitz, LLC, Internetwork Publishing Corp. (d/b/a Lodging.com), Expedia, Inc. (WA), Hotels.com, LP, Hotwire, Inc., Egencia, LLC, Travelocity.com LP, Site59.Com LLC, Destination Management, Inc., and Does 1 Through 1000, Inclusive
Loretta G. Mince, James R. Swanson, Jason W. Burge, Caroline Hogan Paschal, New Orleans, Louisiana, Counsel for Plaintiff/Appellant, State of Louisiana, Department of Revenue John W. Crongeyer, pro hac vice, Atlanta, Georgia and Alexandria E. Seay, pro hac vice, Atlanta, Georgia and Gregory E. Bodin, Baton Rouge, Louisiana and Brandon J. DeCuir, Baton Rouge, Louisiana and Brian K. Jackson, pro hac vice, Birmingham, Alabama and Alejandro "Al" Perkins, Baton Rouge, Louisiana and Drew M. Talbot, Baton Rouge, Louisiana and Russell J. Stutes, Jr., Lake Charles, Louisiana and Margaret H. Kern, Covington, Louisiana, Counsel for Plaintiffs/Appellants, City of New Orleans and Intervenors, City of Baton Rouge/ Parish of East Baton Rouge, Parish of St. Tammany, Calcasieu Parish School Board, Lafayette Parish, Rapides Parish, Bossier Parish, Ouachita Parish, and Caddo Parish Elizabeth Herrington, pro hac vice, Benjamin Kabe, pro hac vice, Chicago, Illinois and Edward D. Wegmann, James C. Percy, Matthew A. Mantle, New Orleans, Louisiana and Thomas M. Flanagan, Anders F. Holmgren, Camille E. Gauthier, New Orleans, Louisiana and William Peterson,pro hac vice, Houston, Texas, Counsel for Defendants/Appellees, Expedia, Inc. (WA), Hotels.com, LP, Hotwire, Inc., Egencia, LLC, Trip Network, Inc., Orbitz, LLC, Internetwork Publishing Corp. (d/ b/a Lodging.com) Jerald P. Block, Sarah M. Lambert, Matthew P. Hymel, Thibodaux, Louisiana, Counsel for Amicus Curiae, American Hotel and Lodging Association, in support of Plaintiffs/Appellants Nicole Saad Bembridge, pro hac vice, Carl M. Szabo, pro hac vice, Christopher J. Marchese, pro hac vice, Paul D. Taske, pro hac vice, Washington, DC and Counsel for Amicus Curiae, NetChoice, in support of Defendants/Appellees Sarah Harbison, James Baehr, New Orleans, Louisiana and Counsel for Amicus Curiae, The Pelican Institute, in support of Defendants/Appellees Laura Chadwick, pro hac vice, Arlington, Virginia, Counsel for Amicus Curiae, Travel Technology Association, in support of Defendants/Appellees
Appealed from the 19th Judicial District Court, In and for the Parish of East Baton Rouge, State of Louisiana, Case No. C650894, The Honorable Wilson E. Fields, Judge Presiding
Loretta G. Mince, James R. Swanson, Jason W. Burge, Caroline Hogan Paschal, New Orleans, Louisiana, Counsel for Plaintiff/Appellant, State of Louisiana, Department of Revenue
John W. Crongeyer, pro hac vice, Atlanta, Georgia and Alexandria E. Seay, pro hac vice, Atlanta, Georgia and Gregory E. Bodin, Baton Rouge, Louisiana and Brandon J. DeCuir, Baton Rouge, Louisiana and Brian K. Jackson, pro hac vice, Birmingham, Alabama and Alejandro "Al" Perkins, Baton Rouge, Louisiana and Drew M. Talbot, Baton Rouge, Louisiana and Russell J. Stutes, Jr., Lake Charles, Louisiana and Margaret H. Kern, Covington, Louisiana, Counsel for Plaintiffs/Appellants, City of New Orleans and Intervenors, City of Baton Rouge/ Parish of East Baton Rouge, Parish of St. Tammany, Calcasieu Parish School Board, Lafayette Parish, Rapides Parish, Bossier Parish, Ouachita Parish, and Caddo Parish
Elizabeth Herrington, pro hac vice, Benjamin Kabe, pro hac vice, Chicago, Illinois and Edward D. Wegmann, James C. Percy, Matthew A. Mantle, New Orleans, Louisiana and Thomas M. Flanagan, Anders F. Holmgren, Camille E. Gauthier, New Orleans, Louisiana and William Peterson,pro hac vice, Houston, Texas, Counsel for Defendants/Appellees, Expedia, Inc. (WA), Hotels.com, LP, Hotwire, Inc., Egencia, LLC, Trip Network, Inc., Orbitz, LLC, Internetwork Publishing Corp. (d/ b/a Lodging.com)
Jerald P. Block, Sarah M. Lambert, Matthew P. Hymel, Thibodaux, Louisiana, Counsel for Amicus Curiae, American Hotel and Lodging Association, in support of Plaintiffs/Appellants
Nicole Saad Bembridge, pro hac vice, Carl M. Szabo, pro hac vice, Christopher J. Marchese, pro hac vice, Paul D. Taske, pro hac vice, Washington, DC and Counsel for Amicus Curiae, NetChoice, in support of Defendants/Appellees
Sarah Harbison, James Baehr, New Orleans, Louisiana and Counsel for Amicus Curiae, The Pelican Institute, in support of Defendants/Appellees
Laura Chadwick, pro hac vice, Arlington, Virginia, Counsel for Amicus Curiae, Travel Technology Association, in support of Defendants/Appellees BEFORE: THERIOT, PENZATO, AND GREENE, JJ.
PENZATO, J.
3In this tax case, the State of Louisiana, Department of Revenue; the City of New Orleans Department of Finance; the City of Baton Rouge, Parish of East Baton Rouge Finance Department; Sheriff Randy Smith, Tax Collector for the Parish of St. Tammany; Kimberly Tyree, Director of the Calcasieu Parish Sales and Use Tax Department; the Lafayette Parish School System, through its Sales Tax Division; the Rapides Parish Police Jury, through its Sales and Use Tax Department; the Bossier City-Parish Sales and Use Tax Division; the City of Monroe, through its Taxation and Revenue Division; and the Caddo-Shreveport Sales and Use Tax Commission appeal a trial court judgment in favor of the following online travel companies: Expedia, Inc. (WA); Hotels.com, LP; Hotwire, Inc.; Egencia, LLC; Trip Network, Inc.; Orbitz, LLC; and Internetwork Publishing Corp. (d/b/a Lodging.com) (collectively "Expedia"). For the reasons set forth herein, we affirm.
FACTS AND PROCEDURAL HISTORY
On August 24,2016, the State of Louisiana, Department of Revenue ("State") and the City of New Orleans Department of Finance ("City of New Orleans") filed a petition for collection of taxes and declaratory judgment against a number of online travel agencies to address what the State and City of New Orleans called "a systematic and direct violation of Louisiana’s tax laws, including Louisiana state law and the City Ordinances of the City of New Orleans[.]" Specifically, the petition 4alleged that the defendants were "dealers" as defined by La. R.S. 47:301(4)(f); engaged in the business of selling and furnishing sleeping rooms, cottages, or cabins to transient guests; required to report and remit sales and use taxes for the sale of services under Louisiana law and the City of New Orleans Code; but failed to do so.
The petition named four groups of online travel agencies as defendants: the Orbitz defendants, the Expedia defendants, the Priceline defendants, and the Travelocity defendants. In addition, the City of New Orleans asserted claims against Destination Management, Inc., which claims were settled prior to trial The claims against the Priceline defendants and the Travelocity defendants were dismissed by judgments signed April 5, 2022. The Orbitz defendants were identified as: Trip Network, Inc.; Orbitz, LLC; and Internetwork Publishing Corp. (d/b/a Lodging.com). The Expedia defendants were identified as: Expedia, Inc. (WA); Hotels.com, LP; Hotwire, Inc.; and Egencia, LLC. Herein, the Orbitz and Expedia defendants are collectively referred to as "Expedia," and are the only defendants remaining in this litigation.
Pursuant to the arrangement between the hotel suppliers and online travel companies, the net rate charged for the room may not be disclosed to consumers by either party at any time To keep the net rate from being discoverable, the consumer is charged a single lump sum labeled "Taxes and Fees" (on occasion, simply labeled "Taxes"), which is calculated by applying the applicable tax rate to the retail rate. The difference between the amount collected as "Taxes and Fees" (or "Taxes") and the amount remitted as sales tax on the net rate is retained by the online travel company as additional compensation for its services.
The petition contained the substance of La. R.S. 47:301 (4)(f)(i), which defines a "dealer" as "[a]ny person, who sells or furnishes any of the services subject to tax under this Chapter."
In Enterprise, this court considered whether the amount paid for a collision damage waiver in conjunction with the lease or rental of a vehicle was subject to the sales tax owed on the lease or rental, where the collision damage waiver was a purely optional purchase that was separately stated on the face of the rental contract In concluding that the collision damage waiver payment was subject to sales tax as part of the gross proceeds derived from the lease or rental, this court pointed out that the essence or real object of the transaction at issue was the lease of a vehicle, that the parties contracted for the collision damage waiver as part of their agreement to lease a vehicle, and that the collision damage waiver clearly could only be made available with the lease or rental of a motor vehicle. Enterprise, 2007-0354 at pp. 6-10, 977 So.2d at 979-981.
According to the petition, under the merchant model adopted by the defendants, the defendants entered into contracts with individual lodging places wherein the parties agreed on a "Wholesale Rate" for the rooms and the defendants acquired the right to display, offer, and facilitate reservations of the rooms to the public at a higher "Retail Rate." The petition alleged that while sales and use taxes were remitted by the lodging places based on the "Wholesale Rate," the defendants collected taxes from the consumer based on the "Retail Rate" but did not remit those taxes directly, thereby depriving the State and the City of New Orleans of the full amounts due and owing to them from the defendants’ sale of lodging. The petition sought a judgment declaring that the defendants were required by state and local tax laws to collect taxes on the gross amount paid by the consumer for the lodging reservation and to remit to the appropriate taxing authority the tax charges collected on the gross amounts paid. The petition further alleged that the defendants’ collection of taxes from consumers created a fiduciary duty owed by them to remit the amount collected to the appropriate taxing authority, and that the defendants’ method of setting forth taxes and fees as a lump sum prevented consumers from ascertaining the true amounts being paid for taxes and fees. The State and the City of New Orleans sought a judgment declaring that the defendants breached their fiduciary duty and ordering payment of all monies being held by the 5defendants as constructive trustees for the State and the City of New Orleans. Finally, The State and the City of New Orleans sought judgment ordering the payment of all taxes, interest, and penalties due to the State and the City of New Orleans.
The petition also alleged that the defendants used unfair and deceptive trade practices in violation of Louisiana’s Unfair Trade Practices and Consumer Protection Law ("LUTPA"), La. R.S. 51:1401, et seq. The State and local taxing authorities’ LUPTA claims were dismissed prior to trial.
Following the filing of the original petition, the City of Baton Rouge, Parish of East Baton Rouge Finance Department; Sheriff Randy Smith, Tax Collector for the Parish of St. Tammany; Kimberly Tyree, Director of the Calcasieu Parish Sales and Use Tax Department; the Lafayette Parish School System, through its Sales Tax Division; the Rapides Parish Police Jury, through its Sales and Use Tax Department; the Bossier City-Parish Sales and Use Tax Division; the City of Monroe, through its Taxation and Revenue Division; and the Caddo-Shreveport Sales and Use Tax Commission (collectively, along with the City of New Orleans, "local taxing authorities") intervened.
The petitions of intervention contained the same allegations as those contained in the original petition and alleged violations of local taxing ordinances. Local taxes must be interpreted, administered, and enforced in the same manner as state taxes. See La. R S 47:337.2, 47:337.4; 47:337.6; see also BP Oil Co. v. Plaquemines Parish Government, 93-1109 (La, 9/6/94), 651 So.2d 1322, 1328, on reh’g (Oct. 13, 1994). Accordingly, our analysis herein addresses state tax laws.
A bench trial proceeded against Expedia. At trial, the evidence established that Expedia is an online marketplace that allows consumers to search for and book a variety of travel services, including hotel stays. To this end, Expedia contracts with travel suppliers (in this case, hotels) for the right to display, offer, and facilitate reservations of the suppliers’ travel products (hotel stays) to consumers through Expedia’s websites. Under the merchant model at issue herein, Expedia contracts with hotels (or hotel chains), which make rooms available to Expedia at a discounted rate ("net rate"). Expedia then marks up the net rate and presents it to the consumer as the rate for the hotel ("retail rate"). Under the merchant model, Expedia is the 6merchant of record in the transaction with the consumer, collects payment for the hotel stay directly from the consumer at the time of booking, and, after the consumer’s hotel stay, forwards payment for the hotel stay to the hotel. Expedia also collects from the consumer the funds necessary to pay the taxes due the state and local taxing authorities and remits them to the hotel, which is responsible for remitting the taxes to the state and local taxing authorities. Several examples of consumer searches on Expedia’s website were introduced into evidence. When a consumer visits Expedia’s website and inputs the city and date of stay, he is provided a list of hotels and the cost per night for the room. The consumer can select from the listed hotels and request a reservation for the desired accommodation. Expedia, as an intermediary, communicates electronically with the hotel to determine whether the hotel has rooms available. If the hotel has availability, the hotel issues the reservation and sends a confirmation number back to Expedia, which Expedia then forwards to the consumer. The consumer has the option to pay at the time of booking (merchant model) or to pay at the time of the stay (agency model). In the merchant model at issue herein, once the reservation is confirmed by the hotel, the consumer’s credit card is charged by Expedia. Evidence presented at trial provides an example of how the charges are typically displayed to the consumer:
Silvia Camarota, Expedia’s Senior Director for Market Management, Lodging, identified the search as a booking path, which she explained as the steps a consumer takes to reach and confirm a hotel reservation on the website.
| Price Summary | |
|---|---|
| Accommodation 1 | $123.29 |
| 1 night | $106.33 |
| $16.96 | |
| Total | $123.29 |
The State and local taxing authorities introduced into evidence three examples where this amount was labeled "Taxes." This was explained as a temporary glitch that did not appear in the booking path, but only on the confirmation page the consumer received.
[Editor’s Note: The preceding image contains the reference for footnote (6)]
7Informational pop-ups as well as Expedia’s terms and conditions explain the components to the charges. The retail room rate is a combination of (1) the net rate the hotel charges for occupancy of the room, and (2) a facilitation fee retained by Expedia for its services in facilitating the reservation. The "Taxes & Fees" are (1) a recovery of the estimated taxes the hotel will be responsible for on the net rate, and (2) a service fee retained by Expedia as additional compensation for its services. The disclosures in the confirmation email match those made to the traveler in the booking path itself, before the traveler’s decision to book a reservation.
When a consumer with a prepaid reservation arrives at the hotel, he is checked in by the hotel staff and is assigned a specific room. The consumer must meet the hotel’s check-in requirements and may be required to present a credit card upon check-in to cover additional expenses incurred during the stay. The hotel staff provides cleaning, security, and concierge services during the consumer’s stay.
After the consumer’s stay, Expedia sends the net room rate to the hotel along with the anticipated taxes the hotel will owe based on the applicable tax rate. The hotel then remits the taxes to the taxing authority.
Following the trial, the trial court took the matter under advisement. It thereafter found that, under the relevant Louisiana taxing statutes, Expedia is not an establishment that consists of sleeping rooms, and is therefore not a hotel as defined by La. R.S. 47:301(6)(a). It further concluded that, based on the testimony given in the trial, Expedia "facilitate[ed] the sale between the actual hotel and the consumer that was the purchaser of the sleeping room." Therefore, the trial court concluded Expedia is not a dealer. Accordingly, the trial court found no tax liability on the part of Expedia because it was not a hotel or a dealer.
The trial court signed a judgment on June 20, 2022, finding in favor of Expedia and dismissing all claims against Expedia by the State and local taxing 8authorities with prejudice. This appeal by the State and local taxing authorities followed.
The June 20, 2022 judgment dismissed the claims of the intervenors, which were erroneously identified as follows: the Parish of East Baton Rouge, the Parish of St Tammany, Calcasieu Parrish, Lafayette Parish, Rapides Parish, Bossier Parish, Ouachita Parish, and Caddo Parish. The petitions of intervention identified the intervenors as the City of Baton Rouge, Parish of East Baton Rouge Finance Department; Sheriff Randy Smith, Tax Collector for the Parish of St. Tammany; Kimberly Tyree, Director of the Calcasieu Parish Sales and Use Tax Department; the Lafayette Parish School System, through its Sales Tax Division; the Rapides Parish Police Jury, through its Sales and Use Tax Department; the Bossier City-Parish Sales and Use Tax Division; the City of Monroe, through its Taxation and Revenue Division; and the Caddo-Shreveport Sales and Use Tax Commission. The identities of the parties in the judgment was not raised as an issue on appeal and It is not disputed by the parties that the judgment intended to dismiss the claims of the parties that intervened in the petition filed by the State and City of New Orleans.
Pursuant to La C.C.P. art. 2164, an appellate court "shall render any judgment which is just, legal, and proper upon the record on appeal." The record before us is complete, and we deem it just, legal, and proper to amend the June 20, 2022 judgment to correctly identify the intervenors. See Boone Services, LLC v. Clark Homes, Inc., 2023-0299 (La. App. 1 Cir. 10/18/23), 377 So.3d 304, 310. Therefore, we amend the June 20, 2022 judgment to dismiss the claims of the City of Baton Rouge, Parish of East Baton Rouge Finance Department; Sheriff Randy Smith, Tax Collector for the Parish of St. Tammany; Kimberly Tyree, Director of the Calcasieu Parish Sales and Use Tax Department; the Lafayette Parish School System, through its Sales Tax Division; the Rapides Parish Police Jury, through its Sales and Use Tax Department, the Bossier City-Parish Sales and Use Tax Division; the City of Monroe, through its Taxation and Revenue Division; and the Caddo-Shreveport Sales and Use Tax Commission.
ASSIGNMENTS OF ERROR
The State
1. The trial court erred by failing to hold that the entire nightly price collected by Expedia from its Merchant Model customers is subject to tax.
2. The trial court erred by holding that Expedia is not a "dealer" in its Merchant Model transactions.
3. The trial court erred by concluding that only "hotels" are required to collect and remit sales taxes on the purchase of hotel room stays.
4. The trial court erred by ignoring the uncontroverted evidence presented at trial showing that, in each of the transactions at issue, Expedia charges the customer a single amount for "Taxes and Fees" (or "Taxes") that is calculated with reference to the full retail room rate paid by the customer multiplied by the sales tax rate of the jurisdiction in which the hotel is located.
5. The trial court’s reliance on Lopinto v. Expedia, Inc. (WA) was in error.
6. The trial court erred by failing to award taxes, interest, and penalties in the amounts stipulated to by the parties. 9 Local Taxing Authorities
1. The trial court erred by failing to following controlling jurisprudence from this Court in Sabine Pipe & Supply Company v. McNamara and permitting Expedia to charge and collect sales taxes from customers for hotel room reservation sales and retain all or part of those tax monies as private profit.
2. The trial court erred by failing to follow controlling jurisprudence from the Louisiana Supreme Court in Normand v. Wal-Mart.com USA, LLC and failing to hold that Expedia contractually undertook the role and obligations of "dealers" under Louisiana law by being the only merchant of record, by charging and collecting tax monies from customers to the exclusion of others.
3. The trial court erred by holding that Expedia is a mere facilitator and does not meet the statutory definition of "dealer" and is therefore, not statutorily obligated to remit the sales tax collected from customers in its sales.
4. The trial court erred by failing to hold that the retail price charged by Expedia is taxable, not just the hidden wholesale amount paid to the hotel.
5. The trial court erred by failing to address Expedia’s liability for taxes on the retail price charged pursuant to its bundling practices.
6. The trial court erred by falling to award unpaid taxes and penalties and interest on those amounts, as set forth in the parties’ joint stipulation.
STANDARD OF REVIEW
[1–4] On legal issues, the appellate court gives no special weight to the factfinder’s conclusions, but exercises its constitutional duty to review questions of law and renders judgment on the record. Succession of Pellette, 2019-1355 (La.App. 1 Cir. 6/12/20), 305 So.3d 893, 898, writ denied, 2020-00881 (La. 10/14/20), 302 So.3d 1117. However, the two-part test for the appellate review of a factual finding is 1) whether there is a reasonable factual basis in the record for the finding of the trial court, and 2) whether the record further establishes that the finding is not manifestly erroneous. Id. If a reasonable factual basis exists, an appellate court may set aside a trial court’s factual finding only if, after reviewing the record in its entirety, it 10determines the trial court’s finding was clearly wrong. Mixed questions of law and fact are also subject to the manifest error standard of review. Id.
LAW AND DISCUSSION
Statutory Interpretation
[5, 6] Taxes may only be levied under a statute that is clear and unambiguous and, strictly construed, leaves no question but that such tax is due and payable. See Brown v. LaNasa, 244 La. 314, 320, 152 So.2d 33, 35 (1963). In interpreting statutes that impose a tax, we begin with the well-settled premise that tax statutes must he strictly construed against the taxing authority, and where a tax statute is susceptible of more than one reasonable interpretation, the courts adopt a construction favorable to the taxpayer. Smith International, Inc. v. Robinson, 2018-1640 (La. App. 1 Cir. 1/9/20), 311 So.3d 1062, 1065, writ denied, 2020-00982 (La. 11/4/20), 303 So.3d 650.
[7] When a law is clear and unambiguous and its application does not lead to absurd consequences, the law shall be applied as written, and no further interpretation may be made in search of the intent of the legislature. La. C.C. art. 9. This principle applies to tax statutes. Smith, 311 So.3d at 1065. It is a recognized rule of statutory construction that the court must give the words of a law their generally prevailing meaning (except that words which are words of art or technical terms must be given their technical meaning). La. C.C. art. 11. Further, when the words of a law are ambiguous, their meaning must be sought by examining the context in which they occur and the text of the law as a whole. La. C.C. art. 12. When the language is susceptible of different meanings, it must be interpreted as having the meaning that best conforms to the purpose of the law. La. C.C. art. 10.
[8, 9] It is presumed that every word, sentence, or provision in the law was intended to serve some useful purpose; that some effect is to be given to each such provision; and that no unnecessary words or provisions were used. The meaning of a statute is 11to be interpreted by looking to all the sections taken together so that no section, clause, sentence or word becomes superfluous or meaningless. Smith, 311 So.3d at 1065.
[10–12] Finally, if a statute is not clear on its face, the meaning must be determined, Statutory interpretation is the province of the judiciary. The paramount consideration in interpreting a statute is ascertaining the legislature’s intent and the reasons that prompted the legislature to enact the law. Smith, 311 So.3d at 1065.
Tax on "sales of services"
The threshold issue in this case is whether the fees charged by Expedia are taxable under the relevant state and local tax ordinances. Resolution of this issue depends upon whether the fees are proceeds of taxable "sales of services" as defined by La. R.S. 47:301(14)(a).
Louisiana Revised Statutes 47:302(C) provides:
(1) There is hereby levied a tax upon all sales of services, as herein defined, in this state, at the rate of two percent of the amounts paid or charged for such services.
(2) The tax levied in this Section shall be collected from the dealer, as defined herein, shall be paid at the time and in the manner hereinafter provided, and shall be in addition to all other taxes, whether levied in the form of excise, license, or privilege taxes, and shall be in addition to taxes levied under the provisions of Chapter 3 of Subtitle II of this Title [La. R.S. 47:341 et seq.]. (Footnote omitted.)
Only those services defined as "sales of services" pursuant to La. R.S. 47:301(14) are taxable. Lopinto v. Expedia, Inc. (WA), 21-132 (LaApp. 5 Cir. 12/23/21), 335 So.3d 432, 441; see also Intracoastal Pipe Service, Co., Inc. v. Assumption Parish Sales and Use Tax Dept., 558 So.2d 1296, 1298 (La.App. 1 Cir.), writ granted on other grounds, 563 So.2d 863 (La. 1990).
Pertinent to this case, La. R.S. 47:301(14)(a) provides as follows:
(14) "Sales of services" means and includes the following:
(a) The furnishing of sleeping rooms, cottages or cabins by hotels.
12Hotels are defined in La. R.S. 47:301(6)(a):
Prior to its amendment, effective July 1, 2016, La. R.S. 47’301(6)(a) defined hotel as "any establishment engaged in the business of furnishing sleeping rooms, cottages, or cabins to transient guests, where such establishment consists of six or more sleeping rooms, cottages, or cabins at a single business location." See La. Acts 2016, 1st Ex. Sess., No. 17, § 1.
(6)(a) "Hotel" means and includes any establishment or person engaged in the business of furnishing sleeping rooms, cottages, or cabins to transient guests, where such establishment consists of sleeping rooms, cottages, or cabins at any of the following:
(i) A single business location.
(ii) A residential location, including but not limited to a house, apartment, condominium, camp, cabin, or other building structure used as a residence.
(iii) For purposes of this Chapter, hotel shall not mean or include any establishment or person leasing apartments or single family dwelling on a month-to-month basis.
[13] The trial court concluded that Expedia is not an establishment that consists of sleeping rooms, and is therefore not a hotel as defined by La. R.S. 47:301(6)(a). We find that the evidence in the record supports this finding. Expedia does not own, operate, or manage any hotel properties in Louisiana and cannot grant consumers the right to access, use, or occupy a hotel room. Expedia does not check in consumers, assign rooms, or perform the daily functions of a hotel cleaning, security, hiring hotel employees).
Louisiana Revised Statutes 47:301(14)(a) requires that the furnishing of sleeping rooms be done "by hotels." See Lopinto, 335 So.3d at 444. When a law is clear and unambiguous and its application does not lead to absurd consequences, the law shall be applied as written and no further interpretation may be made in search of the intent of the legislature. La. C.C. art. 9. Moreover, we must construe this statute strictly against the taxing authority. Accordingly, since Expedia does not meet the definition of "hotel" under La. R.S. 47:301(6)(a), we find that it does not provide taxable "sales of services" under La. R.S. 47:301(14)(a).
This section addresses the State's assignments of error numbers 2, 3, and 5, and the local taxing authorities’ assignments of error numbers 2 and 3.
[14] Louisiana Revised Statutes 47:302(C)(2) contemplates that "the dealer," who is a party to the taxable transaction, is the party responsible for remitting the taxes collected on the specifically defined "sales of services" to the appropriate taxing authority. See Lopinto, 335 So.3d at 441. There can only be one dealer required to collect sales tax from the purchaser. Normand v. Wal-Mart.com USA, LLC, 2019-00263 (La. 1/29/20), 340 So.3d 615, 626.
I. Dealer by statute
[15] Pertinent hereto, "Dealer" is defined by La. R.S. 47:301(4)(f)(i) as "[a]ny person, who sells or furnishes any of the services subject to tax under this Chapter [Chapter 2. Sales Tax of Title 47]." The trial court found that the evidence produced at trial showed that Expedia collected anticipated sales and occupancy taxes from consumers and transmitted the anticipated taxes to the hotel, thereby facilitating the sale between the hotel and the consumer, who was the purchaser of the sleeping room. Accordingly, relying on Lopinto, the trial court concluded Expedia was not a dealer under Louisiana law.
The State and local taxing authorities argue that the trial court erred in this determination. They contend that Expedia meets the statutory definition of a "dealer" because it "sells or furnishes" the taxable service of "furnishing of sleeping rooms … by hotels." The State argues that in a 2001 filing with the Securities Exchange Commission ("SEC"), Expedia described its merchant model as "buying the inventory and selling it to the customer." While the State recognized that in a 2005 SEC filing, Expedia changed the description of its merchant model to read that it "facili- tate[d] the booking of hotel rooms," it argues that despite the change in wording, the evidence supports a finding that in the merchant model, there is a sale 14between the consumer and Expedia, and as such, Expedia is the "dealer" as defined by La. R.S. 47:301(4)(f)(i). The State further argues that the Lopinto court’s holding was based on an incomplete and factually incorrect summary judgment record, and the evidence presented in the instant trial demonstrates a much more pervasive control by Expedia over hotel room inventory and the prices for the room sold. The State argues that these additional facts demonstrate that Expedia is selling the taxable service of hotel room stays.
The evidence at trial established that Expedia provides the following services to consumers. It contracts with hotels for the right to display and offer reservations at the subject hotel to consumers through Expedia’s website. This allows the hotels to reach a broader customer base. By accessing certain databases, Expedia is able to communicate with the hotel selected by the consumer through Expedia’s website to determine whether the hotel has rooms available for the consumer’s selected date. If the hotel has availability, the hotel issues the reservation and sends a confirmation number back to Expedia, which is then forwarded to the consumer. Under the merchant model, Expedia collects payment for the hotel stay, along with funds necessary to pay the taxes due the State and local taxing authorities, from the consumer at the time of booking. Thereafter, on the date of the reservation, the consumer identifies himself to the hotel staff, indicating he has a prepaid reservation. The hotel staff determines whether the consumer meets the hotel’s requirements for a stay and assigns a room to the consumer. After the consumer’s hotel stay, Expedia forwards payment for the hotel stay and the amount required to pay the applicable state and local taxes to the hotel.
15In Normand, 340 So.3d 615, the Louisiana Supreme Court considered whether a marketplace facilitator was a dealer under La. R.S. 47:301(4)(1). The Supreme Court recognized:
Louisiana Revised Statutes 47:301(4) subsection (1) was repealed by La. Acts 2020, No. 216, § 2, eff. July 1, 2020. However, the analysis by the Louisiana Supreme Court remains helpful herein.
[P]ayments for retail sales transactions are frequently processed by service providers that, like the marketplace facilitator here, are not parties to the underlying sales transactions and are not responsible for collecting sales tax. The fact that an intermediary transmits the funds to sellers does not relieve the sellers of their tax-collection obligation or cause the intermediary to assume the sellers’ legal obligation to collect taxes. A contrary interpretation of La. R.S. 47:301(4), in light of Louisiana’ (sic) general tax scheme, would authorize the imposition of liability for sales tax on any intermediary that aids or enables sellers to reach new customers although not selling anything (i.e, payment processors, credit card companies, financial institutions, common carriers, advertisers, and broadcasters).
Normand, 340 So.3d at 631.
We find that the services provided by Expedia enable hotels to reach new customers and accommodate consumers who wish to pre-pay for a hotel stay. These services facilitate the "furnishing of sleeping rooms … by hotels," while it is the hotel that "sells or furnishes" the taxable service of "furnishing of sleeping rooms … by hotels." Thus, we find that the trial court correctly concluded that Expedia was not a dealer under La. R.S. 47:301(4)(f)(f).
2. Dealer by contract pursuant to Normand
[16] The State and local taxing authorities next contend that Expedia contractually assumed the role and obligations of a "dealer" pursuant to Normand, 340 So.3d 615. The local taxing authorities argue that Expedia’s contracts and testimony from industry experts, Expedia executives, and Expedia’s transaction level data and representative transactions in this case demonstrate that Expedia is the only party collecting taxes in these transactions. Thus, they argue that because Expedia was the party collecting the tax money, Expedia has contractually undertaken the role of "dealer," and is the party responsible for remitting the taxes collected.
16The contracts admitted into evidence generally provide that while Expedia is required to calculate and collect an amount to cover the applicable taxes on the hotel stay from the consumer on the hotel’s behalf, the hotels are contractually obligated to remit the taxes to the appropriate taxing authorities. For instance, one contract in evidence provides that Expedia "shall immediately charge the customer’s credit, charge[,] or debit card for the amounts due (including applicable Occupancy Taxes as required hereunder or otherwise at law and fees) for the Hotel Reservation." This contract further provides that the hotel "shall pay to the appropriate tax authorities the amount of Occupancy Taxes applicable to the Net Rate" on all reservations at the hotel received by the hotel from Expedia. Another contract in evidence requires Expedia to "include all applicable taxes in the price of [the hotel stay] at the time the customer is charged, and … pay such amounts to the [Hotel]. … [The Hotel] shall be responsible for paying to the appropriate tax authorities the full amount of all taxes applicable to [Hotel] reservations." Finally, another contract provides that "[The Hotel] shall remit to the appropriate taxing authorities as required by law any and all such Taxes paid to [the Hotel] by any guest via [Expedia]."
In Lopinto, the Louisiana Fifth Circuit Court of Appeal addressed the same claims made by the State and local taxing authorities herein. The Lopinto court found that under Normand, travel intermediaries like Expedia "did not become ‘dealers’ under the subject tax statutes simply by collecting anticipated sales and occupancy taxes directly from the consumers and then transmitting the anticipated taxes to the hotels." Lopinto, 335 So.3d at 445. As the Lopinto court recognized, the fact that Expedia collects and transmits the anticipated taxes on the rental rate charged by the hotels to the hotels does not relieve the hotels of their tax-collection and remittance obligations or cause Expedia to assume the hotels’ obligation to collect and remit the subject taxes to the appropriate taxing authorities. See Id. As 17noted above, pursuant to La. R.S. 47:302(C)(2), "[t]he tax levied in this Section shall be collected from the dealer. …" (Emphasis added.)
[17] We find Normand to be controlling and agree with the Lopinto court that pursuant to the statute, the "dealer" is the party to the taxable transaction who has the legal responsibility to remit the taxes collected to the appropriate taxing authority. Neither the statute nor Normand requires that the "dealer" be the party who collects the taxes from the consumer. Lopinto, 335 So.3d at 445.
Considering all of the evidence presented at the trial herein, we find that the hotels, as furnishers of the hotel rooms in question under La. R.S. 47:301(14)(a), are clearly the "dealers" in the transactions in question, and thus are the parties to the transactions who have the legal responsibility to remit the taxes collected to the appropriate taxing authorities. See Lopinto, 335 So.3d at 445. Accordingly, we find the trial court did not err in its reliance on Lopinto in concluding that Expedia is not a dealer and in finding that Expedia has no responsibility to remit the anticipated taxes collected in the hotel room transactions in question directly to the appropriate taxing authorities.
These assignments are without merit.
Is Expedia liable for taxes on the retail rate because of its bundling practices?
This section addresses the State’s assignment of error number 1 and the local taxing authorities’ assignments of error numbers 4 and 5.
The State and local taxing authorities further argue that La. R.S. 47:302(C) mandates that sales tax is due on "the amounts paid or charged" for taxable services. They contend that, because Expedia bundles its facilitation fee with the amount the hotel charges for occupancy of the room, the retail room rate paid by the consumer is subject to tax because that is the "amount paid" by the consumer for the hotel stay. The State further argues that when a consumer books a hotel through Expedia under the agency model rather than the merchant model, the tax paid for the room is 18different, an outcome which the State contends is "absurd," and not permitted under LAC 61:1.4301(C).
The evidence at trial established that when a consumer visits Expedia’s website and inputs the city and date of stay, he is provided a list of hotels and the cost per night for the room. After the consumer selects a room, he is given the choice to pay now or pay later.
If the consumer elects the pay now option, i.e., the merchant model, the consumer is charged a retail room rate, which is a combination of (1) the net rate the hotel charges for occupancy of the room, and (2) a facilitation fee retained by Expedia for its services in facilitating the reservation. The consumer is advised that the price he pays for the room includes a facilitation fee. For example, the "Website Terms of Use" contained in the booking path used as an example at trial provides as follows with regard to "Prepaid Hotel Reservations":
You acknowledge that [Expedia] pre-negotiate[s] certain room rates with hotel suppliers to facilitate the booking of reservations. You also acknowledge that [Expedia] provide[s] you services to facilitate such booking of reservations for a consideration (the "facilitation fee"). The room rate displayed on the Website is a combination of the pre-negotiated room rate for rooms reserved on your behalf by [Expedia] and the facilitation fee retained by [Expedia] for [its] services.
The pay later option is known as the agency model. The consumer is advised in the "Website Terms of Use" of the difference:
PAY NOW OR PAY LATER DETAILS
With certain hotels, you may be presented with the option to pay online now or pay later at the hotel. If you select the "Pay Online Now" option, Expedia will charge the amount to your credit card in US dollars immediately. If you select "Pay Later at the Hotel", the hotel will charge your credit card in the local currency at the time of your stay. Please note that taxes and fees vary between the two payment options.
Under both the agency and merchant models, the amount the consumer pays for the hotel stay is the same. However, in an agency model transaction, the 19consumer pays the retail rate to the hotel directly for the hotel stay at the time of travel, and the hotel remits taxes on the retail room rate.
[18] We have determined above that Expedia’s facilitation fee is not taxable under the definition of "sales of services" contained in La. R.S. 47:301(14)(a). By focusing on the transaction between Expedia and the consumer, the State and local taxing authorities ignore the clear language of La. R.S. 47:302(C), which levies a tax on "sales of services" based on "the amounts paid or charged for such services." (Emphasis added.) The only taxable service at issue herein is the furnishing of sleeping rooms by hotels. Thus, the only amount in the above transaction subject to tax is the net rate the hotel charges for occupancy of the room.
Despite the State’s contention that this is an absurd result, hotels are free to make and do make business decisions to offer discounted rates under certain circumstances. For example, discounted rates are offered to corporations whose employees frequently travel for business. These discounted rates are governed by the terms and conditions of contractual relationships with the corporation. In these instances, the tax is calculated based upon the negotiated room rate that is charged to the business consumer at the time of check-in. This is analogous to the contractual relationship with Expedia. Thus, in both instances, the taxes paid by the hotel for the discounted room are necessarily different.
1. Louisiana Administrative Code
[19] Despite the clear language of La. R.S. 47:302(C), the State and local taxing authorities argue that Louisiana Administrative Code ("LAC") 61:I.4301(C) mandates that when non-taxable items are lumped into the charges for taxable services or goods, the entire lump sum is taxed.
The legislature has the authority to delegate to administrative boards and agencies of the State the power to ascertain and determine the facts upon which the laws are to be applied and enforced. Coastal Drilling Co, L.L.C. v. Dufrene, 2015-1793, p. 7 (La. 3/15/16), 198 So.3d 108, 114. Accordingly, in La. R.S. 47:1511, the legislature delegated to the Louisiana Department of Revenue the authority to prescribe rules and regulations to carry out the purposes of Title 47, "Revenue and Taxation." Pursuant to that delegation of authority, the rules and regulations promulgated by the Department of Revenue pursuant to the Administrative Procedure Act have the full force and effect of law. See La. R.S. 47:1511.
20Louisiana Administrative Code 61:I.4301(C)(Sates of Services) provides in pertinent part as follows:
Sales of Services
a. State and local sales or use tax law basically treats the furnishing of services and permission to use certain kinds of property the same as the sale of merchandise, and the law classifies those items as sales of services. Only those services specifically itemized under the provisions of R.S. 47:301(14)(a)-(g), are subject to state and local sales or use tax law. … (Emphasis added.)
b. The entire amount charged to a customer for any of the taxable items listed in R.S. 47:301(14)(a)-(g) is taxable if billed in a lump sum. Although the law provides many exemptions, unless they are specifically identified and segregated in billings to customers, the entire charge will be subject to the tax. Whether the consideration paid for sales of services is in the form of cash or otherwise is immaterial.
c. R.S. 47:301(14)(a) includes the furnishing of sleeping rooms, cottages, or cab- ins by hotels as sales of services. Hotels have been defined in R.S. 47:301(6) and the regulation issued under LAC 61:I.4301.C.Hotel. If an establishment meets the definition of a hotel under these laws, all charges for the furnishing of rooms in that establishment, other than to permanent full-time occupants, constitute sales of services.
[20] Under the clear language of LAC 61:I.4301(C)(Sales of Services)(a), "[o]nly those services specifically itemized under the provisions of R.S. 47:301(14)(a)-(g), are subject to state and local sales or use tax law." Herein, the only taxable "sales of services" under La. R.S. 47:301(14)(a) is that provided by the hotel of "furnishing of sleeping rooms … by hotels." Expedia’s facilitation fee is not taxable under the definition of "sales of services" contained in La. R.S. 47:301(14)(a). Thus, under LAC 61:I.4301(C)(Sales of Services)(a), Expedia’s facilitation fees are not subject to state and local sales or use tax law.
[21–24] Louisiana Administrative Code 61:I.4301(C) (Sales of Services)(b) provides that the entire amount charged for any of the taxable items listed in 21R.S. 47:301(14)(a)-(g) is taxable if billed in a lump sum, and requires that any exemption be specifically identified and segregated in billings to customers, or the entire charge will be subject to the tax. A tax exemption is a provision that exempts from tax a transaction, which would, in the absence of the exemption, otherwise be subject to tax. An exclusion, on the other hand, relates to a transaction which is not taxable because it falls outside the scope of the statute giving rise to a tax, ab initio. Songy v. Bayou Bridge Pipeline, LLC, 2020-0860 (La.App. 1 Cir. 2/19/21), 320 So.3d 434, 441, writ denied, 2021-00412 (La. 5/11/21), 315 So.3d 869. Tax exemptions are strictly construed in favor of the taxing authority and must be clearly, unequivocally, and affirmatively established by the taxpayer. Exclusions, on the other hand, are construed liberally in favor of the taxpayers and against the taxing authority. See Harrah's Bossier City Inv. Co., LLC v. Bridges, 2009-1916 (La. 5/11/10), 41 So.3d 438, 446. Expedia’s facilitation fee is not an exemption. Rather, it is an exclusion because it falls outside the scope of the statute giving rise to the tax, La. R.S. 47:302(C), since the facilitation fee does not meet the definition of "sales of services" contained in La. R.S. 47:301(14)(a). Accordingly, LAC 61:I.4301(C)(Sales of Services)(b) does not require that Expedia’s facilitation fee be specifically identified and segregated.
Moreover, the rules and regulations promulgated by the Department of Revenue cannot extend the taxing jurisdiction of the statute, as taxes are imposed by the legislature, not the Department of Revenue. GameStop, Inc. v. St. Mary Parish Sales & Use Tax Department, 2014-0878 (La. App. 1 Cir. 3/19/15), 166 So.3d 1090, 1096, n.6, writ denied, 2015-0783 (La. 6/1/15), 171 So.3d 929. Accordingly, we find the State and local taxing authorities’ reliance on LAC 61:I.4301(C) to be misplaced.
22 2. Essence of transaction
The State further argues that the "essence" of the transaction is a hotel room stay, and Expedia cannot avoid taxes by artificially splitting a taxable transaction into two parts.
On appeal, the State directs this Court to several cases in support of its argument that Expedia cannot avoid taxes on the facilitation fee (which we have already determined is not taxable) by "artificially splitting" a taxable transaction, i.e., a hotel room stay, into two components. In Enterprise Leasing Co. of New Orleans v. Curtis, 07-0354 (La.App. 1 Cir. 11/2/07), 977 So.2d 975, 976-77, writ denied, 2007-2320 (La. 2/1/08), 976 So.2d 719, relied upon by the State, this Court considered whether the amount paid for a collision damage waiver in conjunction with the lease or rental of a vehicle was part of the "gross proceeds derived from the lease or rental of tangible personal property" and thus subject to sales tax pursuant to La. R.S. 47:302(B)(1). Enterprise argued, inter alia, that collision damage waiver receipts were not taxable because other optional products it offered, such as personal accident insurance/personal effects coverage and supplemental liability protection, were not subject to sales and use taxes, and there was no reason to treat collision damage waiver receipts any differently. Enterprise, 977 So.2d at 980-81. This Court found Enterprise’s argument to be without merit, finding the charges collected for personal accident insurance/personal effects coverage and supplemental liability protection were for the insurance premiums for coverage provided through a third-party insurance company. Id. This Court indicated that the real object of the transaction at issue was the lease of a vehicle, the parties contracted for the collision damage waiver as part of their agreement to lease a vehicle, and the collision damage waiver clearly could only be made available with the lease or rental of a motor vehicle. Therefore, the collision damage waiver payment was subject to sales tax as part of the gross proceeds derived from the lease or rental. Id. at 980.
23The State also cites to McNamara v. Electrode Corp., 418 So.2d 652, 660 (La. App. 1 Cir.), writ denied, 420 So.2d 986 (La. 1982), wherein this Court was confronted with the issue of whether proceeds received from a "Technology and Patent License Agreement" were subject to a lease tax. The "Technology and Patent License Agreement" was entered into at the same time as an "Anode Lease Agreement," which was subject to tax. This Court noted that the true object of the contracts, whether labeled "Technology and Patent License Agreement" or "Anode Lease Agreement," were the anodes, without which the technology, know-how, etc. would have been of no use, and held that the statutes and jurisprudence did not allow the separation of gross proceeds from a lease into a nontaxable part attributable to technology. Id. at 662-63. See also Occidental Chemical Corp. v. Slaughter, 99-963 (La. App. 5 Cir. 1/25/00), 751 So.2d 397, 400, cited by the State (agreeing with the holding in McNamara and finding that fees paid for patent rights to use dimensionally stable anodes were subject to sales and use taxation).
We do not find that the cases cited by the State are applicable to the issue presented herein. First, none of the cases involve the tax statute at issue herein, i.e., the "sales of services," nor mandate an extension of their interpretation of statutes involving taxes on leases of tangible personal property. The cases relied upon by the State involve a single seller’s charges incidental to its lease of tangible goods. Moreover, in Enterprise, 977 So.2d at 980-81, this Court recognized that nontaxable services provided by a third party, like the facilitation services provided by Expedia herein, do not become taxable because they are billed with taxable services.
These assignments of error are without merit.
24 Did Expedia owe a fiduciary duty?
This section addresses the State's assignment of error number 4 and the local taxing authorities’ assignment of error number 1.
[25] The State and local taxing authorities next contend that in calculating the "Taxes and Fees" line item displayed to the consumer, Expedia uses a formula that applies the applicable tax rate to the retail rate charged to the consumer for the hotel. Thus, they argue that Expedia has a fiduciary duty to remit to the appropriate taxing authorities the full amount collected as "Taxes and Fees." In support of their argument, the State and local taxing authorities cite La. R.S. 47:304 and Sabine Pipe & Supply Co. v. McNamara, 411 So.2d 1167, 1169 (La. App. 1 Cir.), writ denied, 414 So.2d 1254 (La. 1982).
As noted in footnote 6, the evidence presented at trial contained three examples of receipts provided to consumers in merchant model transactions where this amount was simply labeled "Taxes."
Louisiana Revised Statutes 47:304(1) provides that:
The sums of money collected by the dealer for payment of sales and use taxes imposed by the state of Louisiana, or any such taxes imposed by any parish, municipality, or political subdivision within the state, shall be and remain the property of the taxing authority and deemed held in trust for the taxing authority.
As noted above, we have already determined that the hotels, not Expedia, are the dealers in the merchant model transactions.
The evidence at trial established that in the merchant model, at the time of booking, the consumer is charged an amount for "Taxes & Fees," which is a combination of (1) a recovery of the estimated taxes the hotel will be responsible for on the net rate, and (2) a service fee retained by Expedia as additional compensation for its services. The evidence also established that the consumer is advised that this amount includes service fees. For example, the "Website Terms of Use" contained in the booking path used as an example at trial provides as follows with regard to "Prepaid Hotel Reservations":
You acknowledge that except as provided below with respect to tax obligations on the amounts we retain for our services, [Expedia] do[es] not collect taxes for remittance to applicable taxing authorities. The tax recovery charges on prepaid hotel transactions are a recovery of the 25estimated taxes (e.g. sales and use, occupancy, room tax, excise tax, value added tax, etc.) that [Expedia] pay[s] to the hotel supplier for taxes due on the hotel’s rental rate for the room. The hotel suppliers invoice [Expedia] for certain charges, including tax amounts. The hotel suppliers are responsible for remitting applicable taxes to the applicable taxing jurisdictions. … The actual tax amounts paid by [Expedia] to the hotel suppliers may vary from the tax recovery charge amounts, depending upon the rates, taxability, etc. in effect at the time of the actual use of the hotel by our customers. We retain service fees as additional compensation in servicing your travel reservation.
Evidence was also introduced that the combined "Taxes & Fees" line item was calculated using various formulas at various times. Despite the State and local taxing authorities’ contention that the line item was calculated by applying Louisiana’s combined state and local tax rate to the retail sales price, the evidence established that the formula used was simply a mechanism for Expedia to receive compensation for its services.
In Sabine, 411 So.2d at 1168, a Texas seller of oilfield equipment and supplies made sales to Louisiana customers. The record established that the transactions between Sabine and its Louisiana customers were Texas sales on which no sales taxes were due the State of Louisiana; however, on those transactions through which merchandise (personal tangible property) was brought into Louisiana for use in this State, "use taxes" were due under La. R.S. 47:302(A)(2). Id. at 1169. Sabine in fact collected the use tax from each of its Louisiana customers, but failed to remit the taxes it collected to the State. This Court held that by undertaking to collect Louisiana’s use taxes for the State, Sabine entered into a fiduciary relationship with the State, and became obligated to remit to Louisiana those taxes which belong to Louisiana. By failing to do so, Sabine breached its fiduciary duty. Id.
We find that Sabine is inapplicable herein, and does not support a finding that the method by which Expedia calculates the "Taxes & Fees" line item renders the entire amount due to the applicable taxing authority. As noted above, Expedia does not owe "sales of services" taxes on the "fees" it collects from the consumer for 26facilitating the hotel reservations. Unlike Sabine, Expedia does not collect or retain any sales or occupancy taxes due to the taxing authorities that are not remitted by the hotels. Moreover, we do not find that the three instances where this line item was simply labeled "Taxes" warrants a different outcome. The consumer was advised through the terms and conditions that this is a combined amount although the confirmation page did not include reference to "Fees." This glitch does not render an otherwise non-taxable service taxable.
Thus, we do not find that Expedia has a fiduciary duty to remit to the appropriate taxing authorities the full amount collected as "Taxes and Fees" from the consumer.
These assignments of error are without merit.
Based upon our finding that Expedia had no liability for taxes on its fees, we pretermit discussion of the State’s assignment of error number 6 and the local taxing authorities’ assignment of error number 6.
CONCLUSION
For the reasons set forth herein, the June 20, 2022 judgment in favor of Expedia, Inc. (WA); Hotels.com, LP; Hotwire, Inc.; Egencia, LLC; Trip Network, Inc.; Orbitz, LLC; and Internetwork Publishing Corp. (d/b/a Lodging.com), dismissing all claims by the State of Louisiana, Department of Revenue; the City of New Orleans Department of Finance; the City of Baton Rouge, Parish of East Baton Rouge Finance Department; Sheriff Randy Smith, Tax Collector for the Parish of St. Tammany; Kimberly Tyree, Director of the Calcasieu Parish Sales and Use Tax Department; the Lafayette Parish School System, through its Sales Tax Division; the Rapides Parish Police Jury, through its Sales and Use Tax Department; the Bossier City-Parish Sales and Use Tax Division; the City of Monroe, through its Taxation and Revenue Division; and the Caddo-Shreveport Sales and Use Tax Commission, is affirmed. Costs in the amount of $11,153.00 are divided, equally among the State 27of Louisiana, Department of Revenue; the City of New Orleans Department of Finance; the City of Baton Rouge, Parish of East Baton Rouge Finance Department;, Sheriff Randy Smith, Tax Collector for the Parish of St. Tammany; Kimberly Tyree, Director of the Calcasieu Parish Sales and Use Tax Department; the Lafayette Parish School System, through its Sales Tax Division; the Rapides Parish Police Jury, through its Sales and Use Tax Department; the Bossier City-Parish Sales and Use Tax Division; the City of Monroe, through its Taxation and Revenue Division; and the Caddo-Shreveport Sales and Use Tax Commission.
JUDGMENT AMENDED AND AFFIRMED AS AMENDED.
Theriot, J. dissents with reasons THERIOT, J., dissents and assigns reasons.
1I respectfully disagree with the majority opinion. My analysis of the applicable law and evidence leads to the conclusion that sales tax is owed in a merchant model transaction on the lump sum retail rate paid by the consumer for a hotel stay, rather than the secret net rate paid later by the online travel company, and further, that the online travel company, having contractually assumed the obligation to collect the sales tax from the consumer, is obligated to remit the sales tax owed. For these reasons, as more fully explained below, I dissent. Calculation of Sales Tax Owed
To determine whether the sales tax imposed by La. R.S. 47:302(C) is owed on the retail rate or the net rate when a consumer purchases a hotel stay in a merchant model transaction, we must look first to the language of the statutes. See GameStop, Inc. v. St. Mary Parish Sales & Use Tax Department, 2014-0878, p. 7 (La.App. 1 Cir. 3/19/15), 166 So.3d 1090, 1095, writ denied, 2015-0783 (La. 6/1/15), 171 So.3d 929 ("The starting point in the interpretation of any statute is the language of the 2statute itself."). Louisiana Revised Statutes 47:302(C)(1) provides: "There is hereby levied a tax upon all sales of services, as herein defined, in this state, at the rate of two percent of the amounts paid or charged for such services " (emphasis added). "[S]uch services," as used in this provision, refers to the taxable services set forth in La. R.S. 47:301(14), including "[t]he furnishing of sleeping rooms .. by hotels." La. R.S. 47:301(14)(a). Thus, according to the plain language of the statutes, the sales tax on a hotel stay is to be calculated as a percentage of the amount paid or charged for the taxable service, i.e., the furnishing of a sleeping room by a hotel.
The amount "paid or charged" for a hotel stay in a merchant model transaction is the retail room rate. The division of the retail room rate into a charge for a taxable service (furnishing the sleeping room to the consumer) and a charge for a nontaxable service (the online travel company’s travel services) occurs only between the online travel company and the hotel supplier, and the amounts charged for each of the bundled services are not itemized or disclosed to the consumer at any time.1a However, the majority concludes that because part of the retail rate is actually compensation for a nontaxable service, the sales tax should be calculated only on the portion of the retail rate that represents the taxable service (the hotel supplier’s charge for furnishing a sleeping room to the consumer), i.e., the net rate.
The majority’s conclusion that the net rate received by the hotel is the amount "paid or charged" for the taxable service improperly shifts the focus away from the transaction in which the consumer purchases a hotel stay, to the contractual arrangement between the online travel company and the hotel supplier. Sales tax is levied on the sales transaction itself at the point of sale to the consumer. See 3 A. M.A. Distributors, Inc. v. School Board of Parish of Iberville, 98-0373, p. 4 (La.App. 1 Cir. 4/1/99), 729 So.2d 765, 767; Reed v. City of New Orleans, 593 So.2d 368, 371 (La. 1992). Under the applicable statutes, sales tax must be collected from the recipient of the taxable service (the hotel guest), calculated on the amount paid or charged for the service (the furnishing of a sleeping room). See La. R.S. 47:301(9); La. R.S. 47:302(C); La. R.S. 47:304(A), (C), & (E). The consumer is the party primarily liable for the payment of the tax under the statutory scheme, such that a taxing authority may proceed against the consumer if sales taxes are not collected and remitted on a transaction. See McNamara, 417 So.2d at 1314-15; Bill Roberts, Inc. v. McNamara, 539 So.2d 1226, n.5 (1989); Concordia Parish School Board v. Russ, 491 So.2d 1368, 1372 (La.App. 3 Cir. 1986). The person who sells or furnishes the taxable service is required to collect the sales tax owed from the consumer at the point of sale as the agent for the taxing authorities and remit the sales tax collected to the appropriate taxing authorities, but is not responsible for payment of the tax unless he fails, refuses, or neglects to collect it from the consumer. See La. R.S. 47:301(4)(f)(i); La. R.S. 47:302(C)(2); La. R.S. 47:303(A)(1); La. R.S. 47:304(A), (C), & (E); La. R.S. 47:306(A)(l)(a) & (5); La. R.S. 47:337.18(5). Thus, it is the transaction in which the consumer purchases a hotel stay that is pertinent to our determination of the amount paid or charged for the taxable service.
Additionally, the sales tax regulations promulgated by the Louisiana Department of Revenue, specifically LAC 61:I.4301(C)(Sales of Services), are instructive regarding the calculation of sales tax in situations such as the one before us, where a taxable service is billed in a lump sum with other items or services. However, mindful that an administrative agency’s construction of its own regulation cannot be given effect where it is contrary to or inconsistent with the legislative Intent of the applicable statute, it is necessary for us to determine whether the provisions of LAC 61:L4301(C)(Sales of Services) are a reasonable interpretation of 4the provisions of Title 47 relative to taxing sales of services or are inconsistent with or a prohibited expansion of the scope of the statutes. See Davis-Lynch Holding Co., Inc. v. Robinson, 2019-1574, p. 14 (La.App. 1 Cir. 12/30/20), 316 So.3d 1126, 1134-35; Barfield v. Bolotte, 2015-0847, p. 12 (La.App. 1 Cir. 12/23/15), 185 So.3d 781, 789, writ denied, 2016-0307 (La. 5/13/16), 191 So.3d 1058. The sales tax at issue in this case is levied on all "sales of services" enumerated in La. R.S. 47:301(14); therefore, if the service being purchased is taxable under La. R.S. 47:301(14), the tax is to be imposed on the amount "paid or charged" for the service. See La. R.S. 47:302(C)(1). If the amount "paid or charged" for the taxable service is stated as a lump sum, then pursuant to the plain language of La. R.S. 47:302(C), the tax must be calculated on that amount. Although exemptions from the tax on Bales of services exist, if a taxpayer asserts that the lump sum amount paid for a taxable service also includes charges for services that are exempt from sales tax, it is only logical that those exempt services must be specifically identified and segregated, since exemptions are strictly construed in favor of the State and must be clearly, unequivocally, and affirmatively established by the taxpayer. See Harrah's, 2009-1916 at p. 10, 41 So.3d at 446. Thus, the provision of LAC 61:I.4301(C)(Sales of Services)(b), subjecting the entire amount charged for any taxable item to sales tax if billed in a lump sum, is not inconsistent with the statute, nor does it extend the taxing jurisdiction of the statute. Likewise, the statement in LAC 61:I.4301(C)(Sales of Services)(c) that "[i]f an establishment meets the definition of a hotel under these laws, all charges for the furnishing of rooms in that establishment, other than to permanent full-time occupants, constitute sales of services," is simply an explanation of the statutory provisions applicable to the tax imposed on hotel stays. This provision simply incorporates the limited exemptions or exclusions applicable to the tax imposed on the furnishing of sleeping rooms by hotels (the establishment furnishing the rooms must fit the statutory definition of a "hotel," and the rooms 5must be furnished to transient guests), and explains that if none of those exemptions or exclusions apply, the entire amount paid or charged for the hotel stay is taxable. See La. R.S. 47:301(6) & (14)(a); La. R.S. 47:302(C)(1); LAC 61:I.4301(C)(Sales of Services)(c). This is simply a restatement of the applicable statutory provisions and does not extend the taxing jurisdiction of the statutes. Accordingly, the rules and regulations promulgated by the Department of Revenue have the full force and effect of law pursuant to La. R.S. 47:1511. See Coastal Drilling Co., L.L.C. v. Dufrene, 2015-1793, pp. 7-10 (La. 3/15/16), 198 So.3d 108, 114-116.
Further, the jurisprudence reveals that attempts by parties to a transaction to divide the amount paid into separate charges to avoid sales tax on portions of the sale have not always been successful, even when the taxable and nontaxable items or services are separately stated. When assessing the taxability of a transaction, courts must examine the essence or true object of the transaction as a whole. See Pot-O-Gold Rentals, L.L.C. v. City of Baton Rouge, 2014-2154, p. 2 (La. 1/16/15), 155 So.3d 511, 512; Enterprise Leasing Co. of New Orleans v. Curtis, 07-0354 (La.App. 1 Cir. 11/2/07), 977 So.2d 975, writ denied, 07-2320 (La. 2/1/08), 976 So.2d 719;2a McNamara v. Electrode Corp., 418 So.2d 652, 661 (La.App. 1 Cir.), writ denied, 420 So.2d 986 (La. 1982). It is the substance of the transaction, not the form, that is controlling for the determination of tax liability for sales tax purposes. Neither the wording of a contract, nor the splitting or dividing it up by the contracting parties, is determinative. The collection of taxes cannot be defeated by either the wording, form, or label of a contract. Something is either taxable or not, regardless of the type of invoicing methods utilized. 6 International Paper Co. v. East Feliciana Parish School Board, 2002-0648, p. 5 (La.App. 1 Cir. 3/28/03), 850 So.2d 717, 721, writ denied, 2003-1190 (La. 6/20/03), 847 So.2d 1235.
In this case, the consumer pays the same amount (the retail rate) for the hotel stay regardless of whether the hotel stay is booked in a merchant model or agency model transaction. The online travel company receives compensation for its services regardless of the model employed, and the online travel company’s services cannot be separated from or purchased independently of the purchase of the hotel stay. Although the consumer in a merchant model transaction is generally advised in the "fine print" that the retail rate includes an undisclosed amount of compensation for the online travel company’s services, the consumer cannot purchase the online travel company’s services separately or elect to purchase the hotel stay without the online travel company’s services, as they are bundled into a lump sum retail rate. Dara Khosrowshahi, president and CEO of several of the online travel company defendants, testified that the online travel companies’ services to consumers are integral to the transaction such that they cannot be separated from the actual provision of a hotel room for a consumer’s stay. Thus, it is clear that the substance or real object of the merchant model transactions is the purchase of a hotel stay, and the attempt by the online travel companies and hotel suppliers to divide the transaction into separate services is not determinative. Further, since the real object of a merchant model transaction is a taxable service (the purchase of a hotel stay), and since the allegedly nontaxable service is not specifically identified and segregated in the billing to the consumer, the entire amount charged to or paid by the consumer (the lump sum retail rate) is subject to taxation. See LAC 61.I. 4301(C)(Sales of Services)(b) & (c).
Finally, the construction of the statutes applied by the majority produces an absurd result in that the entire amount charged to the consumer for a hotel stay is taxable when the retail room rate is paid directly to the hotel supplier, who then pays 7a commission or fee to the online travel company, but only the amount received by the hotel supplier is taxable when the retail rate is paid to the online travel company, which retains a fee for its services and forwards the remainder to the hotel supplier. In both situations, the hotel supplier receives a portion of the retail room rate for furnishing the room and the online travel company receives a portion of the retail room rate as compensation for its services, but in one instance, the full amount paid by the consumer is subject to sales tax, while in the other, only a portion of the amount paid by the consumer is subject to sales tax. See Pot-O-Gold Rentals, LLC v. City of Baton Rouge, 14-2154 (La. 1/16/15), 155 So.3d 511 (Noting that "to hold that providing cleaning services for portable toilets is not a taxable event if the toilet is owned by someone else, but is a taxable service if the toilet is owned by the lessor, creates an absurd result.").
Online Travel Companies' Obligation to Remit Taxes Owed and Collected
Additionally, I disagree with the majority’s conclusion that the online travel companies have no obligation to collect or remit sales taxes from consumers who book hotel stays in merchant model transactions because the online travel companies are not "dealers" under the applicable law. Even if the hotel suppliers are the "dealers" who have the legal responsibility to remit the taxes collected to the appropriate taxing authorities, dealers may satisfy their obligation to collect sales tax from purchasers through their agents or employees, and the law does not prohibit the contractual assumption of dealers’ obligations to collect and remit sales tax. See La. R.S. 47:304(E) (recognizing that a dealer may collect sales tax "either by himself or through his agents or employees."); see also Normand v. Wal-Mart.com USA, LLC, 2019-00263, pp. 26-28 (La. 1/29/20), 340 So.3d 615, 632-33 (holding that Wal-Mart.com was not liable for sales tax that was not collected from consumers on purchases from third-party retailers on its online marketplace because Wal-mart. com 8did not contractually assume, to the exclusion of the dealers, the obligation to collect sales tax).
In this case, pursuant to the contractual arrangement between the online travel companies and the hotel suppliers, the on- line travel companies were solely responsible for calculating and collecting an amount to cover the applicable taxes on the hotel stay from the consumer in merchant model transactions. This contractual assumption of the obligation to collect sales tax from the consumer was clearly to the exclusion of the hotel suppliers, as evidenced by contractual provisions placing the sole responsibility on the online travel companies for calculating and including all applicable taxes in the price of the hotel stay charged to the consumer, as well as provisions prohibiting the hotel suppliers from charging the consumer directly for any of the items to be collected by the online travel companies. Since the evidence presented establishes that the online travel companies contractually assumed the hotel suppliers’ obligation to collect sales tax from the consumers, to the exclusion of the hotel suppliers, the conclusion that they are not "dealers" is not determinative of the issue of whether they can be compelled to remit the amounts collected from consumers that are owed as tax to the taxing authorities.
Further, although the contractual arrangement between the parties obligates the hotel suppliers, not the online travel companies, to remit the sales tax collected from consumers to the taxing authorities, this arrangement does not allow the online travel companies to retain any portion of the amount collected, which is owed as taxes, as additional compensation for its services. The sums of money collected by the dealer for payment of state and local sales taxes shall be and remain the property of the taxing authority and deemed held in trust for the taxing authority. La. R.S. 47:304(1); La. R.S. 47:337.17(1); Lerner New York, Inc. v. Normand, 19-350, pp. 17-18 (La.App. 5 Cir. 12/26/19), 288 So.3d 242, 255, writ denied, 20-00162 (La. 5/1/20), 295 So.3d 939. It is not necessary to conclude that the online travel 9companies are statutorily or contractually obligated to collect and remit sales tax to the taxing authorities in order for the online travel companies to be required to remit the sales tax owed and actually collected from consumers. In Sabine Pipe & Supply Co. v. McNamara, 411 So.2d 1167 (1982), this Court held that where an out-of-state seller, who was not a dealer under Louisiana’s sales tax laws and therefore not obligated to collect Louisiana sales or use taxes, undertakes to collect (separately from the purchase price) amounts equivalent to the sales or use taxes owed by the Louisiana customer to the State of Louisiana, the seller enters into a fiduciary relationship with the State and is obligated to remit the taxes collected to the State. This Court held that it is irrelevant whether the label "dealer" is pinned on the seller; once the seller collects the taxes owed by the purchaser to the State, the State can compel the seller to remit the taxes. Id., 411 So.2d at 1169. Thus, the sales tax collected by the online travel companies from consumers in merchant model transactions is and remains the property of the taxing authority, and is held in trust for the taxing authority by the online travel companies. Furthermore, it is irrelevant that the amounts collected from consumers by the online travel companies were purportedly bundled "Taxes and Fees;" once the online travel company collected an amount equivalent to the sales or use taxes owed by the consumer to the taxing authorities, it entered into a fiduciary relationship with the taxing authorities and is obligated to remit the taxes collected to the taxing authorities. See Sabine Pipe & Supply Co., 411 So.2d at 1169.
Accordingly, I dissent, and would reverse the trial court’s June 20, 2022 judgment in favor of the online travel companies.