Arkansas Supreme Court Finds Online Travel Companies Not Liable for Hotel Taxes

Reversing a decision from a circuit court, the Arkansas Supreme Court held last month that a group of online travel companies (“OTCs”), including Hotels.com, Expedia, and Orbitz, were not liable for state and local gross receipts and tourism taxes (together, the “hotel taxes”), penalties, and attorneys’ fees and costs totaling over $45 million because the OTCs were not providing or furnishing accommodations to transient guests. The decision ended a nearly 15-year legal dispute between OTCs and government agencies in Arkansas. Hotels.com LP v. Pine Bluff Adver. & Promotion Comm’n, No. CV-23-416 (Ark. 2024).

Facts: Government agencies and the state of Arkansas brought a declaratory judgment action (which was granted class certification) against OTCs seeking more than 22 years’ worth of unpaid hotel taxes. The hotel taxes applied to entities furnishing or providing accommodations to transient guests. The circuit court found that, under the plain language of the relevant statutes, the OTCs were “provider[s] of accommodations to [] transient guest[s]” and, thus, were entities subject to taxation under the hotel taxes.

The legislature made amendments in 2019 (after the years at issue in the case) which applied the hotel taxes to “accommodations intermediaries.”

Decision: The Arkansas Supreme Court reversed the circuit court, finding that the OTCs were not taxable entities within the meaning of the hotel taxes. The Court found that there was ambiguity as to whether the OTCs were “any other provider of accommodations” and applied canons of statutory construction to determine the legislature’s intent.

First, the Court found that the OTCs were not expressly listed as entities subject to the hotel taxes, and that the circuit court’s conclusion that the phrase “any other provider of accommodations” encompassed OTCs was contrary to the doctrine of ejusdem generis, “which provides that when general words follow specific words in a statutory enunciation, the general words are construed to embrace only objects similar in nature to those objects enumerated by the preceding specific words.” The Court found that OTCs do not “own, operate, or manage lodging establishments” but rather are “accommodations intermediaries.”

Further, the fact that the statutes were amended in 2019 to include “accommodations intermediaries” as taxable entities was compelling and supported the OTCs’ construction. The Court found that the amendment to include intermediaries subject to tax demonstrated that the intermediaries were “newly subject to the taxes.” If intermediaries were already subject to tax under the prior law, there would have been no need for the amendment, and legislative action is presumed to affect change: “the legislature will not be presumed to have done a vain and useless thing.”

Finally, the Court’s interpretation was consistent with the Department of Finance and Administration (“DF&A”) understanding of the law before and after the 2019 amendments. The DF&A’s 2019 legislative-impact statement observed that the amendments “‘modif[y] existing law to include ‘accommodations intermediary’ as an entity furnishing, making available for, or otherwise arranging for the sale or use of a room[.]’”

Relying on the canons of statutory construction, the Court found that the legislative intent reflected that the OTCs were not subject to the hotel taxes prior to the 2019 amendments. “In this instance, the OTCs are online technology companies that facilitate reservations between travelers and lodging establishments that supply the rooms. This service does not fit within the plain language of ‘renting, leasing, or otherwise furnishing’ rooms.”

Take Away: Where language in a statute is susceptible to more than one reasonable interpretation, it is ambiguous, and courts will look to the legislative intent to interpret the statute. Where, as in this case, amendments to a statute add a class of entities to be subject to tax under the new law, courts will likely determine that under the prior law, such entities were not subject to tax because legislatures are presumed to have knowledge of current law, and any amendments are meant to affect a change in law. If the original statute applied to OTCs, there would have been no need for the 2019 amendment.