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The application of sales tax imposed by S.C. Code Ann. § 12-36-920(A) to "every person engaged in the business of furnishing accommodations" reveals that the legislature intended to levy the tax not merely on those physically providing sleeping accommodations, but on those entities who were accepting money in exchange for supplying hotel rooms. Additionally, § 12-36-920(C) specifically dispels the notion that the tax is imposed only on those entities physically providing the sleeping accommodations. Section 12-36-920(C) establishes that the tax is also assessed against real estate agents, brokers, corporations, and listing services.
Travelscape is an online travel company offering hotel reservations at locations across the country through the website Expedia.com ("Expedia"). Although Travelscape neither owns nor operates hotels, it enters into contracts with hotels whereby the hotels agree to accept a discounted rate from those offered to the general public ("net rate") for reservations made on Expedia. Travelscape then adds a facilitation fee, service fee, and tax recovery charge to the net rate of the room. The facilitation and service fees are retained by Travelscape as compensation for its role in the transaction.If a customer books a hotel reservation on Expedia, Travelscape charges the customer's credit card for the transaction. Unless the customer purchases additional guests services while staying at the hotel (i.e. room service, movie rentals, or valet parking), the customer pays no money to the hotel for her stay. After the customer checks out of the hotel, the hotel invoices Travelscape for the net room rate as well as sales tax owed by the hotel. Travelscape then remits the net room rate and tax recovery charge to the hotel. Travelscape retains the facilitation and service fees and does not pay sales tax on these fees. The Department of Revenue ("Department") conducted an audit of Travelscape's records for the period of July 1, 2001 through June 30, 2006. The Department determined Travelscape was required to pay a sales tax of seven percent on the gross proceeds received from furnishing hotel accommodations in South Carolina. Thereafter, the Department issued Travelscape an assessment and penalty in the amount of $6,376,454.71. Travelscape filed a timely request for a contested case hearing before the ALC in accordance with section 12-60-460 of the South Carolina Code (Supp. 2009). The ALC issued a final order, finding Travelscape was required to pay the tax but not required to pay the penalties imposed by the Department.
Is Travelscape liable for payment of the Accommodations Tax under S.C. Code Ann. Sec. 12-36-920(E)?
Travelscape was correct in pointing out that "furnish" as used in subsection (A) invokes the connotation of physically providing sleeping accommodations to customers. Indeed, the American Heritage Dictionary defines "furnish" as "[t]o equip with what is needed" and to "supply" or "give." Relying on Powerex, Travelscape argued the term "furnish" as used in subsection (E) should be read consonant with its use in subsection (A). The Court agreed. As used in subsection (E), "furnish" did mean to physically provide sleeping accommodations. However, Travelscape's argument ignored the antecedent language in (E) that it applied to all persons "engaged . . . in the business of" furnishing accommodations. "Business" includes "all activities, with the object of gain, profit, benefit, or advantage, either direct or indirect." S.C. Code Ann. § 12-36-20 (2000). Accordingly, the context of "furnish" as it appeared in subsection (E) demonstrated that it encompassed the activities of entities such as Travelscape who, whether directly or indirectly, provide hotel reservations to transients for consideration. The Court did not read the term "furnish" differently in subsection (E) than it did in (A). Instead, subsection (E) was interpreted in such a manner as to give effect to all the language contained therein—particularly that the entity be "engaged . . . in the business of" furnishing accommodations—rather than focusing on the term "furnish" in isolation. While Travelscape does not physically provide accommodations, it was in the business of doing so.