Illinois – Tax Charged by Online Travel Companies is a Valid Use Tax

SALT Report 1154 – The U.S. District Court for the Northern District of Illinois has decided that a 7% hotel tax imposed by the village of Rosemont, Illinois, on room rental fees that were charged by various online travel companies (OTC’s) is a valid use tax.

The court found that customers paid charges to OTC’s for the right to occupy hotel rooms in Rosemont and that the OTCs’ assistance with travel-related services was incidental to the rental of hotel rooms.  The court further decided that the hotel tax was a use tax.  Illinois law states that a tax on hotel room rentals is a use tax, not a sales (occupation) tax.

The court then found that the full amount of the rental fees paid by customers to the OTC’s was taxable under Rosemont Ordinance § 10-23(a) which states, “The Village of Rosemont shall impose a tax on the privilege of renting a hotel or motel room at a rate of 7% of the room rental rate.”

OTC’s charged Rosemont customers a room rental fee that included:

  • The amount that the hotels charged the OTC’s, and
  • The OTCs’ markup on the hotels’ charges

In response to an argument made by the OTC’s, the court found that the hotel tax did not violate Illinois’ dormant Commerce Clause and that the OTC’s had established nexus with Illinois because:

  • The tax was levied for the right to use a hotel room in Illinois
  • The tax was paid by the person who uses the room, and
  • The OTC’s entered into contracts with the hotels for the right to market, facilitate, and book reservations where they would profit from such reservations.

Additionally, the court found that the tax was fairly apportioned because it is imposed on a use that can occur in only one place and the tax does not discriminate against interstate commerce since it is applied at the same rate to every hotel reservation in Rosemont. Finally, the court stated that the tax is justified because it is related to Illinois services as the renting person has the advantage of the state’s services i.e., police and fire protection, while staying in Illinois.

For Further Information:

The Village of Rosemont v. Priceline.com U.S. District Court, N.D. Illinois, No. 09 C 4438