Argued September 30, 2014
[Copyrighted Material Omitted]
Appeals from the Superior Court of the District of Columbia. (CAB-2117-11). (Hon. Craig Iscoe, Trial Judge).
Darrel L. Hieber, with whom John K. Villa and Kenneth C. Smurzynski were on the briefs, for appellants/cross-appellees.
Todd S. Kim, Solicitor General, with whom Irvin B. Nathan, Attorney General for the District of Columbia at the time the briefs were filed, Loren L. AliKhan, Deputy Solicitor General, Mary L. Wilson, Senior Assistant Attorney General, Office of Solicitor General, Bennett Rushkoff, Chief, Public Advocacy Section, and Jimmy R. Rock, Assistant Attorney General, were on the brief, for appellee/cross-appellant.
Before BECKWITH and MCLEESE, Associate Judges, and NEWMAN, Senior Judge.
Beckwith, Associate Judge
In the District of Columbia, sales tax is governed by D.C. Code § § 47-2001 to 47-2027. That statute imposes tax on " vendors" for exercising the privilege of " selling at retail certain tangible personal property," as well as " selling certain selected services[.]" D.C. Code § 47-2002 (a). The definition of " retail sale" lists the services that are subject to sales tax. D.C. Code § 47-2001 (n)(1)(A)-(U). This case involves the contours of one of the statute's enumerated services, " the sale or charge for any room . . . furnished to transients by any hotel[.]" D.C. Code § 47-2001 (n)(1)(C). Specifically, the District of Columbia and appellants online travel companies (OTCs) read that statute differently as applied to the retail margins the OTCs earn when they facilitate transactions between customers and hotels in the District of Columbia. The District argues that the OTCs are " vendors" liable for sales tax, and seeks to collect tax on the gross receipts of the entire transaction that occurs between the OTC and its customer. The OTCs argue that the only taxable transaction under the statute is the one that occurs between the customer and the hotel--one in which the OTC participates only indirectly--and therefore sales tax is not due on the retail margins the OTC retains for itself. The matter is ultimately one of statutory construction. The statute is not entirely clear, and both sides read it in a reasonable manner. The Superior Court granted summary judgment to the District, reasoning that because the tax is a sales tax rather than an operator's tax, the amount that the OTC charges the customer--retail margins included--constitutes " the sale or charge for any room . . . furnished to transients by any hotel" under the statute, notwithstanding that it is
ultimately the hotel, rather than the OTC, that does the actual furnishing. We agree.
Having found that the OTCs are liable for the District of Columbia sales tax, we confront a second issue concerning the extent of that tax liability. The District argues that the OTCs are liable for tax on the entire amount they collect from their customers, including the " sales tax reimbursement" amount that the OTCs have been passing on to the hotels, which the hotels, in turn, remit to the District as the sales tax due on the amount the hotels earn on the deal. In reply, the OTCs argue that this " sales tax reimbursement" amount should be excluded from the taxable " sales price" by the plain text of D.C. Code § 47-2001 (p)(2)(D). The " sales price" is defined as the " total amount paid" to a " vendor" by a " purchaser" for the taxable service, but--as the District concedes--expressly excludes " [t]he amount of reimbursement of tax paid by the purchaser to the vendor under this chapter[.]" D.C. Code § 47-2001 (p)(2)(D). Nevertheless, the District claims that the OTCs are not entitled to the benefit of the § 47-2001 (p)(2)(D) exclusion because the OTCs have been failing to state the tax reimbursement amounts separately when collecting such amounts from their customers, and the separate statement is one of the chapter's requirements. Therefore, the District contends, those reimbursement amounts have not been properly collected " under this chapter" and are not entitled to the benefit of the § 47-2001 (p)(2)(D) exclusion. The Superior Court rejected that reading of the statute and granted summary judgment to the OTCs because, while the statute does require tax reimbursement amounts to be stated separately, it does not make the separate statement a prerequisite to being a " reimbursement of tax paid by the purchaser to the vendor under this chapter[.]" Put differently, the Superior Court read § 47-2001 (p)(2)(D) as simply excluding the tax reimbursement amount from the sales price, rather than creating an exclusion that vendors " earn" when they state the sales tax reimbursement amount separately and " forfeit" when they do not. While requiring a vendor to forfeit the § 47-2001 (p)(2)(D) exclusion when the vendor fails to state the tax reimbursement amount separately would be a permissible statutory scheme, the Superior Court was not convinced that that is the scheme Congress had in mind, and neither are we. We reject the District's invitation to read such a forfeiture into the words " under this chapter," and affirm the trial court's grant of summary judgment to the OTCs with respect to the § 47-2001 (p)(2)(D) exclusion.
I. The Facts
Appellant OTCs operate websites that allow customers to search for, compare, book, and pay for travel reservations. In that respect, the OTCs serve as intermediaries between customers and a host of travel service providers, including car rental companies, airlines, and--importantly for this appeal--hotels. The OTCs' primary business model for the sale of hotel rooms is known as the merchant model: a uniform, nationwide model that operates the same way, in all relevant respects, for all OTCs and in all jurisdictions, including in the District of Columbia. The OTCs have been using the merchant model to book hotel stays in the District since at least the late 1990s.
Under the merchant model, the OTCs contract with hotels for the right to sell hotel rooms to online customers at a " retail rate," while paying the hotels that actually furnish the rooms some lower, negotiated " net rate." In a typical merchant model transaction, a customer uses an OTC's website to search for and select
a hotel room. The customer enters her payment information directly into the OTC's website, the OTC forwards the reservation request to the hotel, and the hotel determines whether to accept the request based on factors like availability. The OTC must communicate with the hotel before confirming because the hotel retains the ability to change room rates and availability, even seconds after such information is displayed to a customer on an OTC website. These are high-speed communications that are processed through the OTCs' websites and servers, and might run between the OTC and a particular hotel, between the OTC and a national or regional hotel chain, or between the OTC and certain third-party intermediaries that hotels use to transmit this sort of information. If the hotel accepts the booking, it sends a confirmation number to the OTC, which then charges the customer's credit card and forwards that confirmation number to the customer. No money changes hands directly between the customer and hotel, unless the customer chooses to purchase incidental items like room service or valet parking.
When charging the customer's credit card, the OTC collects an amount that consists of the net room rate that it will later forward to the hotel, a tax recovery charge, and a retail margin that the OTC keeps as profit. The tax recovery charge--which represents the sales tax due on the net room rate received by the hotel--is also forwarded to the hotel, which then remits it to the District. The District thus receives the sales tax due on the net rate paid to the hotel, but does not receive sales tax on the OTCs' retail margins--that is, on the difference between (1) the total charges that the customer pays to the OTC and (2) the lower, net rate that the OTC forwards to the hotel.
When it charges the customer, the OTC does not isolate the " sales tax" as a separate amount, but instead calls the sales tax a " tax recovery charge," which it combines with a " service fee." As a result, the customer does not know how much sales tax has been paid on the transaction.
On March 22, 2011, the District brought suit to recover what it viewed as unpaid back sales taxes--those owed on the OTCs' retail margins--as well as penalties and interest related to the OTCs' merchant model sales in the District since 1998. On September 24, 2012, the Superior Court granted partial summary judgment to the District on the issue of the OTCs' basic tax liability, holding that the District's " gross sales tax law has applied to Defendants [the OTCs] at all times." The court also found that the OTCs had failed to state any sales tax amounts separately from the other retail charges, but reserved ruling on the tax effect of that finding. Then on December 9, 2013, the court resolved the tax effect of that ruling in favor of the OTCs, concluding that the sales tax amounts that the OTCs had been collecting from their customers and forwarding to the hotels should be excluded from the " sales price" on which the OTCs now owe sales tax, despite the fact that those sales tax amounts had not been stated separately. Both parties appealed.
II. The Sales Tax Law
Pursuant to D.C. Code § 47-2001, the District of Columbia imposes sales tax upon all " vendors" for " the privilege of selling at retail certain tangible personal property and for the privilege of selling certain selected services[.]" D.C. Code § § 47-2002 (a). Many of these terms are defined in the statute. A " vendor" is " a person or retailer selling property or rendering services upon the receipts from which a tax is imposed under this chapter." D.C. Code § 47-2001 (w). A " purchaser" is
" a person who purchases property or to whom is rendered services, receipts from which are taxable under this chapter." D.C. Code § 47-2001 (j). A " sale" or " selling" is:
[a]ny transaction whereby title or possession . . . of tangible personal property is . . . transferred . . . for a consideration, by a vendor to a purchaser, or any transaction whereby services subject to tax under this chapter are rendered for consideration or are sold to any purchaser by any vendor[.]
D.C. Code § 47-2001 (q). Thus, a " sale" is either transferring possession of property, or rendering a taxable service, for consideration. The taxable services are laid out in the definition of " retail sale" in § 47-2001 (n)(1)(A)-(U), the only one at issue here being the following:
The sale or charge for any room or rooms, lodgings, or accommodations furnished to transients by any hotel, inn, tourist camp, tourist cabin, or any other place in which rooms, lodgings, or accommodations are regularly furnished to transients for a consideration.
D.C. Code § 47-2001 (n)(1)(C) (emphasis added). The total tax rate imposed on the " sale of or charges for any [hotel] rooms" is 14.5% of the " gross receipts." See D.C. Code § 47-2002 (2) (imposing tax of 10.05%); § 47-2002.02 (1) (imposing additional tax of 4.45%). Gross receipts are defined as " the total amount of the sales prices of the retail sales of vendors[.]" D.C. Code § 47-2001 (h).
The statute imposes tax only on the vendor, but requires that " reimbursement for the tax imposed upon the vendor shall be collected by the vendor . . . from the purchaser on all sales the gross receipts from which are subject to tax imposed by this chapter so far as it can be done." D.C. Code § 47-2003 (a). The statute further requires that the reimbursement be stated separately, mandating that
[u]pon each sale of tangible personal property or services, the gross receipts from which are taxable under this chapter, the reimbursement of tax to be collected by the vendor from the purchaser under the provisions of this chapter shall be stated and charged separately from the sales price and shown separately on any record thereof at the time the sale is made or evidence of sale issued or employed by the vendor.
D.C. Code § 47-2009. There is one additional wrinkle, and that is in the definition of " sales price." This is important because the tax is imposed upon " gross receipts" that are, in turn, defined in terms of " sales price." The statute defines " sales price" as " the total amount paid by a purchaser to a vendor as consideration for a retail sale," D.C. Code § 47-2001 (p)(1), and clarifies that the sales price includes " [a]ny services that are a part of the sale[.]" D.C. Code § 47-2001 (p)(1)(C)(i). That definition of " sales price" is limited, however, by a number of exclusions that appear in § 47-2001 (p)(2). At issue in this case is the § 47-2001 (p)(2)(D) exclusion, which provides that " [t]he term 'sales price' does not include . . . [t]he amount of reimbursement of tax paid by the purchaser to the vendor under this chapter[.]"
Finally, there is a municipal regulation on the subject. 9 DCMR § 408, enacted in 1954 and entitled " Sales Price: Taxes, Interest, and Other Charges," begins with the preface: " In addition to the provisions of the Act" --meaning the D.C. Code § 47-2001 (p)(2) exclusions--" the term 'sales
price,' as used in the Act, shall not include any of the exceptions set forth in this section." 9 DCMR § 408.1. Section 408.2 goes on to provide that: " The amount of reimbursement of taxes paid by the purchaser to the vendor under the Act shall not be subject to the tax if the reimbursement amount is stated separately from the sales price."
Since the District filed this lawsuit on March 22, 2011, the District's sales tax statute has been amended several times. The D.C. Council inserted mention of " net charges and additional charges" as well as " room remarketer" into the definition of the taxable service in D.C. Code § 47-2001 (n)(1)(C) (2012 Repl.), which now reads:
The sale or charge, to include net charges and additional charges, for any room or rooms, lodgings, or accommodations furnished to transients by any hotel, room remarketer, inn, tourist camp, tourist cabin, or any other place in which rooms, lodgings, or accommodations are regularly furnished to transients for a consideration.
D.C. Code § 47-2001 (n)(1)(C) (emphasis added). The statute goes on to define " room remarketer" as:
[A]ny person, other than the operator of a hotel, inn, tourist camp, tourist cabin, or any other place in which rooms, lodgings, or accommodations are regularly furnished to transients for a consideration, having any right, access, ability, or authority, through an internet transaction or any other means whatsoever, to offer, reserve, book, arrange for, remarket, distribute, broker, resell, or facilitate the transfer of rooms the occupancy of which is subject to tax under this chapter and also having any right, access, ability or authority to determine the sale or charge for the rooms, lodgings, or accommodations.
D.C. Code § 47-2001 (o-1) (2012 Repl.). Similarly, the tax provisions at § 47-2002 (a)(2)(B) and § 47-2002.02 (1)(B) were amended to clarify that
[i]f the occupancy of a room or rooms, lodgings, or accommodations is reserved, booked, or otherwise arranged for by a room remarketer, the tax imposed by this paragraph shall be determined based on the net charges and additional charges received by the room remarketer.
D.C. Code § 47-2002 (a)(2)(B); § 47-2002.02 (1)(B).
III. The Standard of Review
This court reviews summary judgment rulings de novo. Square 345 Ltd. P'ship v. District of Columbia, 927 A.2d 1020, 1023 (D.C. 2007). The court is to " conduct an independent review of the record . . . in considering whether the motion was properly granted." Id.
IV. The OTCs' Liability for Sales Tax
The rules of statutory construction are well established in the District of Columbia. See District of Columbia v. Place, 892 A.2d 1108, 1111 (D.C. 2006). " The first step in construing a statute is to read the language of the statute and construe its words according to their ordinary sense and plain meaning." Hospitality Temps Corp. v. District of Columbia, 926 A.2d 131, 136 (D.C. 2007) (citation and internal quotation marks omitted)). The court must give effect to a statute's plain meaning when its words are clear and unambiguous. See District of Columbia v. Bender, 906 A.2d 277, 281-82 (D.C. 2006). Generally, " [w]hen the plain meaning of the statutory language is unambiguous, the intent of the ...