Wednesday, August 11, 2021 v. Comptroller of Maryland (Ct. of Appeals)


Filed: April 30, 2021

Opinion by: Judge Michele D. Hotten 


Online travel companies that facilitate hotel room or car rental reservations were not liable for Maryland sales and use tax prior to the 2015 amendment to Md. Code § 11-102(a) of the Tax-General Article; that amendment specifically added such companies to § 11-102(a)’s statutory definition of “vendors” liable for sales tax.


Petitioner (“Business”) operated an online travel company that facilitated web-based transactions between customers and third-party airlines, hotels, and rental car agencies.  Business entered into contracts with the third-party providers whereby it gained access to their reservation systems and subsequently listed the available flights, rooms, and vehicles on its internet portal.  In real-time, Business would connect interested customers’ selected reservations to the third-party providers; if a specific transaction matched an interested customer with an availability, the customer received the reservation, the third-party provider received the booking, and Business handled the communications, payments, and cancellations.  Business marked up the base rates charged by the third-party providers in return for the service it provided.

In November 2011, Respondent (“Comptroller”) assessed Business based on an audit of its 2003-2011 operations (the “audit period”) for the difference in tax rates between that ordinarily paid by Business and that paid by the third-party providers.  Comptroller issued a final determination in November 2012 which assessed Business over $6.4 million in taxes, fees, and interest.

In December 2012, Business appealed the tax assessment to the Maryland Tax Court, arguing that only a vendor of rooms, and vehicles was required to pay sales tax, and that as an online travel company it neither owned nor controlled the right to possess any of the rooms or vehicles that might give rise to sales tax liability.  Business further argued that the Maryland General Assembly’s 2015 amendment of the Tax Code to expand the definition of “vendor” to include “accommodations intermediaries” supported its position that it was excluded from the definition of “vendor,” and thus not subject to sales tax until 2015.  In December 2017, the Tax Court held Business liable for sales tax because Business was engaged in the business of a retail vendor, sold the right to occupy rooms or rent vehicles, and that the act of facilitating such reservations and rentals constituted sale of tangible personal property subject to sales tax.  However, the Tax Court found Business not negligent in failing to pay the tax during the audit period, to have made a good faith appeal, and to be entitled to enjoy a four-year statute of limitations, arriving at an adjusted assessment of $295,000.

Both parties petitioned for review in the Circuit Court for Anne Arundel County.  The Circuit Court in 2018 heard Comptroller’s appeal and affirmed the Tax Court’s decision.  The circuit court initially dismissed Business’s appeal for procedural errors, but in 2019 vacated the dismissal, heard the appeal, and affirmed the Tax Court’s decision.

In May 2019 Comptroller noted its appeal to the Court of Special Appeals, which stayed the appeal pending the circuit court’s decision on Business’s appeal.  In March 2020 the Court of Special Appeals lifted the stay and consolidated the appeals.  Prior to consideration by that court, Business petitioned and the Comptroller cross-petitioned to the Court of Appeals for certiorari, which the Court of Appeals granted.


The Court initially noted that the Tax Court’s interpretations of tax law often necessarily involve mixed questions of fact and law entitled to a degree of deference and that it would use the same standard of review appropriate to administrative agencies’ factual findings: whether a reasoning mind could reasonably have reached the agency’s conclusion.  By contrast, the Tax Court’s purely legal conclusions would be afforded great weight, but would not bind the Court and would be considered de novo.

The Court continued its inquiry with statutory construction in order to construe § 11-102(a) (which imposes sales and use tax liability on “retail sale in the State; and a use, in the State, of tangible personal property or a taxable service”) as it existed during the audit period in question.  In order for Business to be liable, its conduct must have been both (1) “a sale or use” (2) “of tangible personal property”.  Finding hotel rooms and car rentals to clearly qualify as concerning tangible personal property or rights thereto, the Court turned to whether the transactions constituted a sale or use.

Evaluating relevant contract language of contracts spanning 2004 to 2010 between Business and its various third-party providers, the Court determined the contracts not to have transferred title or possession of the hotel rooms or rental cars to Business, but merely to have given Business the right to make those rooms and cars available to customers of its web portal and thereby broaden the distribution of the third-party providers’ products and services. Business did not purchase inventory nor accept any risk of loss of that inventory pursuant to the contracts.  The third-party providers remained owners & operators of their hotels and vehicles. Business merely facilitated transactions between customer and provider. In light of that analysis, the Court found Business’s transactions not to have constituted a sale or use under § 11-102(a), and not to be liable for sales tax in the audit period.

The Court similarly found Comptroller’s alternate argument unavailing: that Business should be liable for sales tax as an out-of-state or retail vendor under § 11-701(b) or (c). The Court’s earlier analysis finding Business not to have acquired title or possession of the tangible personal property meant Business could not possibly qualify as an 11-701(b) out-of-state vendor or 11-701(c) retail vendor because Business’s conduct did not meet the Tax Code’s definition of a sale.  Nor were the third-party providers acting as agents of Business within the State; each party acted according to contractually-agreed terms for mutual benefit.  Business facilitated the transaction but third-party providers ultimately delivered the rooms and vehicles.

The Court determined that, as it existed during the audit period, the sales and use statute (1) excluded online travel companies from the definition of vendor (2) left no debate about whether Business’s service concerned tangible personal property, but (3) left open whether an online travel company (such as Business) constituted a vendor that sold or delivered such tangible personal property.  In 2015, the Maryland General Assembly clarified that third item by expanding the statutory definition of vendors to specifically include “accommodations intermediaries,” or those other than an accommodations provider who facilitate the sale or use of an accommodation for a fee.  The Court found this subsequent clarification by the General Assembly in adding  “accommodations intermediary” to the statutory definition of vendor meant that an intermediary such as Business was not a vendor liable for sales tax prior to the amendment; to find otherwise would render the new language mere surplusage. As to any potential ambiguity in the statute before the 2015 amendment, the Court interpreted that ambiguity in Business’ favor to further conclude that Business was not liable for sales tax during the audit period.

Accordingly, the Court reversed, finding the circuit court to have erred in its decision affirming the Tax Court.

Three Judges noted their dissent and would have affirmed the Tax Court’s conclusion that Business was a “vendor” under the Tax Code as it existed during the audit period.

The full opinion is available in PDF.

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