AS TRAVEL PRACTICES EVOLVED, THE MARYLAND GENERAL ASSEMBLY’S 2015 AMENDMENT OF THE TAX CODE REDEFINED THE DEFINITION OF A VENDOR TO INCLUDE ACCOMMODATIONS INTERMEDIARY.

The Court of Appeals of Maryland held that facilitating hotel room and rental car reservations did not meet the statutory definition of “vendors” who “sold” or “delivered tangible personal property” for sales and use tax purposes.   Travelocity.com LP v. Comptroller of Md., 473 Md. 319, 334 250 A.3d 175, 184 (2021) (citing Md. Code. Ann., Tax-Gen § 11-101 (West 2015)).  The court conducted a plain language analysis of the Maryland Tax Code to determine that without a transfer of “title or possession,” there is no liability to pay sales and use tax.  Travelocity, 473 Md. at 334, 250 A.3d at 184 (citing Md. Code. Ann., Tax-Gen § 11-101).  The court further elaborated that in 2015, the General Assembly expanded the definition of a “vendor” liable for the sales and use tax to include an “accommodations intermediary.”  Travelocity, 473 Md. at 341, 250 A.3d at 188 (citing Md. Code. Ann., Tax-Gen § 11-101(o)(1)(iv)).  The court acknowledged that any ambiguity within statutory language must be interpreted in favor of the taxpayer.  Travelocity, 473 Md. at 344, 250 A.3d at 190.

During an audit period March 1, 2003 to April 30, 2011, Travelocity.com (“Travelocity”) functioned as an online travel company that presented an independent platform to review and inquire about reservations from third-party airlines, hotels, and rental car agencies.  Travelocity remained the intermediary connecting third-party organizations and customers by handling payments, confirmations, and cancellations.  Customers who utilized the service paid a one-time lump sum to Travelocity, consisting of the net rate, taxes, and additional fees for the booking service.  Travelocity then paid the hotel and car rental agencies the net rate and taxes.

On November 11, 2011, the Maryland Comptroller (“Comptroller”) implemented a sales and use tax on the gap among the tax and net rate paid by the hotels and car rental agencies.  The Maryland Tax Court observed the amount of tax imposed by the Comptroller on Travelocity and found that Travelocity was not negligent in failing to pay the tax during the audit period.  The Tax Court found, however, that Travelocity was liable for the tax.  The Tax Court granted partial summary judgment in favor of the Comptroller regarding the sales and use tax. Nevertheless, Travelocity received a partial summary judgment, restricting the Comptroller’s evaluation regarding the tax penalties. Both parties petitioned for judicial review of the Tax Court’s holding. 

On appeal, the Circuit Court for Anne Arundel County affirmed the judgment of the Maryland Tax Court.  The court held there was substantial evidence that Travelocity participated in the business of a retail vendor because it sold the right to occupy a hotel room or rent a vehicle, both of which are considered tangible personal property.  Both parties appealed to the Court of Special Appeals of Maryland.  Prior to consideration by the Court of Special Appeals of Maryland, the parties petitioned for certiorari in the Court of Appeals of Maryland, which the court granted.      

The Court of Appeals of Maryland had to determine the legislature’s intention through the plain language analysis of the Maryland Tax Code.  Travelocity, 473 Md. at 329-30, 250 A.3d at 181 (citing Md. Code. Ann., Tax-Gen § 11-101).  To be liable for paying the sales and use tax, Travelocity must have “sold” or “delivered” the hotel rooms and rental cars as a “vendor”.  Travelocity, 473 Md. at 333, 250 A.3d at 183-84.  Vendors liable for sales and use tax directly sell tangible personal property or a taxable service in the State.  Id. at 333-34, 250 A.3d at 183-84. 

In the 2007 agreement between Travelocity and a participating Maryland hotel, the court examined that Travelocity did not purchase, obtain inventory, or procure risk of loss.  Travelocity, 473 Md. at 336, 250 A.3d at 185.  Without a direct transfer of a hotel room or rental car, absent a third party, Travelocity never met the definition of a “sale” or secured title or possession of any property.  Id. at 333-35, 250 A.3d at 183-85 (citing Md. Code. Ann., Tax-Gen § 11-101).  The court found the agreement’s overall purpose broadened the distribution of travel services through Travelocity’s website.  Travelocity, 473 Md. at 336, 250 A.3d at 185.

In 2015, the General Assembly expanded the scope of a “vendor” to include an “accommodations intermediary.”  Travelocity, 473 Md. at 341, 250 A.3d at 188 (citing Md. Code. Ann., Tax-Gen § 11-101).  An accommodation intermediary, such as Travelocity, facilitates the sale or use of an accommodation for a fee.  Travelocity, 473 Md. at 342, 250 A.3d at 188-89.   As a result, the amended statute demonstrates that the definition of “vendor” failed to encompass accommodation intermediary.  Id. at 343, 250 A.3d at 189 (citing State v. Coleman, 423 Md. 66, 683, 33 A.3d 468, 278 (2011)).

The Court of Appeals of Maryland concluded that when a tax statute presents ambiguous language, the interpretation will favor of the taxpayer.  Travelocity, 473 Md. at 344, 250 A.3d at 190 (citing Comptroller of the Treasury v. Citicorp Int’l Commc’ns, Inc., 389 Md. 156, 165, 884 A.2d 112, 117 (2005)).  The court thus affirmed that the expansion of the definition of “vendor” proves that the prior statute was ambiguous.  Travelocity, 473 Md. at 345, 250 A.3d at 190.  The court, therefore, held that Travelocity was not liable for the sales and use tax because of the ambiguous meaning of a “vendor.”  Id. at 345, 250 A.3d at 190.

Judge Watts, joined by Judge Barbera, and Judge McDonald dissented.  Travelocity, 473 Md. at 346, 250 A.3d at 191.  Judge Watts opined that Travelocity acted as a vendor by accepting direct payment from the customers.  Id. at 473 Md. at 347, 250 A.3d at 191-92.  The dissent suggested that the General Assembly never indicated that the definition of a vendor was ambiguous. Id. at 349-50, 250 A.3d at 193 (citing Md. Code. Ann., Tax-Gen § 11-101(o)(1)). Rather, the General Assembly responded to the legal question raised by Travelocity’s failure to pay sales and use tax.  Travelocity, 473 Md. at 349-50, 250 A.3d at 193.  The dissent also contended that the majority failed to observe that Travelocity sold a grant of license for use by selling the right to utilize a hotel room or rental car.  Id. at 352, 250 A.3d at 195.  The dissent concluded that there was substantial evidence to support the findings by the Maryland Tax Court that Travelocity was a “vendor”.  Id. at 355, 250 A.3d at 197 (citing Md. Code. Ann., Tax-Gen § 11-101(o)(1)(i)).   

The Court of Appeals of Maryland held that travel industry practices have consistently developed the State’s tax legislation.  Due to evident ambiguity within the statutory language of the tax code, the plain language and past legislative intent indicated that Travelocity was not liable for the sales and use tax during the audit period.  Though the dissent believes the majority’s approach failed to acknowledge that Travelocity acted in the same capacity as a vendor, the statute’s plain language and subsequent legislative history reveal Travelocity’s actions did not correspond to the definition before the 2015 Amendment.  Travelocity.com LP v. Comptroller of Maryland reveals the importance of applying plain language analysis to ascertain the Maryland legislature’s intent.  As a result of this decision, legal practitioners seeking clarification concerning ambiguous statutes recognize that the plain language meaning of the statute and past legislative intent are frequently used as determinants.

Julia Rowland is a second-year law student at the University of Baltimore School of Law and a proud University of Delaware alumna. Julia is a Staff Editor for Law Forum and a competitor on the National Appellate Advocacy Moot Court Team.  She also serves as a teaching assistant for Contracts, the Secretary of the Student Bar Association, and a UB LEADS Mentor for the incoming 1L class.  Julia currently works as a legal intern at Medifast, Inc.