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When you hear about people like golfer Phil Mickelson moving from high tax states like California, the most likely destinations are Texas and Florida.  You don’t hear Wyoming mentioned very often.  Back in the pre-internet days of yore, we used to write to every state revenue department to get copies of their return packages, that we could then photo-copy and have on hand just in case.  We got a nice letter from Wyoming explaining that they did not have any forms for us because there were neither personal nor corporate income taxes in Wyoming.  The letter went on to tell us about the great hunting and fishing and natural beauty – nothing like a little cheap advertising.  I have never hunted and don’t fish and only drove through Wyoming once.  I found the scenery quite impressive.  No place in the world is more beautiful than New England, though.  Just saying.

Apparently one of the ways that Wyoming makes its no income tax system work is by receiving more federal aid per-capita than most other states.  Actually all other states except Alaska according to the infallible source.  Another way, apparently, is to be real serious about the taxes that they do collect.  Tourism is one of Wyoming’s major industries.  Hotel room rentals are subject to tax.  The Wyoming Department of Revenue, along with other states and many cities, has taken on the on-line reservation companies over how those taxes are computed.  The Department recently won a major victory in a decision before the State Board of Equalization.  On the other side were Travelocity.com, Priceline.com, Hotels.com, Hotwire.com, Expedia, Orbitz and Trip Network (d/b/a Cheaptickets).

Who Was I Rooting For ?

When I am reading cases, my default is to root for the taxpayers.  In this case, and the many like it, I root for the government.  That is because  the on-line companies have a practice that really annoys me.  If you trouble yourself to look at the “fine print” as you work through their reservation system, you will see that the amount designated as taxes which you are charged by them is actually a “tax recovery charge”.  If they figure out a way to send in less to the city or state involved, they get to keep the difference.  I gotta tell you.  Don’t even think about trying that with payroll withholding or just about any other tax you are tasked with collecting.

In effect, the “tax recovery” amount has the potential for being another profit center.  It is like the supremely annoying practice of car rental companies charging you for a full tank of gas and telling you to bring the car back empty.  I rarely have time to circle the airport for an hour or so in order to be able to coast up to the return agent with an empty tank.  So they get to sell a gallon or two of gas that I paid for to somebody else, who likely does the same thing.  Then there is the thing they do with collision insurance.  Don’t get me started.

What Is Wyoming’s Beef ?

The companies don’t have Wyoming nexus so they don’t think they should have to collect sales tax for Wyoming.  If the operator of the hotel were paying sales tax on the full amount that the customers were paying for the room that would be a no harm, no foul type of situation.  That is not what happens.  Under the merchant model, the on-line company negotiates a net rate with the operator and then marks that up, by an undisclosed amount, to charge the customer.  The net rate is not disclosed to the customer.  So the customer does not know how much tax is actually paid.  The operator knows and, of course, the Revenue Department knows.  The Revenue Department would prefer that the tax be figured on the gross amount charged by the on-line company not the net amount the company remits to the operator.  Maybe it is the principle of the thing, but more likely it is because charging on the gross gets more money to the state.

The Ruling

The decision is pretty lengthy.  It is a good read, if you are interested in keeping score on this issue. The decision notes how the on-line companies have fared against Birmingham and Bowling Green and numerous other places large and small.  Apparently there is not a broad overreaching federal principle at stake here or at least none that the companies have been able to make stick.  The cases turn on the precise wording of the state statute or local ordinance or provisions of state constitutions.  When it comes to Wyoming:

After carefully examining the facts and the parties’ assertions and contentions, the Board concludes the Department correctly determined pursuant to Wyoming law and its rules that Petitioners were vendors, engaging in taxable transactions, and liable to collect and remit sales taxes on the full amount paid by transient guests to Petitioners for lodging in Wyoming hotels.

Why Do I Find This Issue So Interesting ?

It always makes me think of my first job that was in anyway accounting related.  For a couple of years, while I was going to night school to get my second bachelors degree, I worked as a hotel night auditor.  I think I learned more about people doing that job than just about any I ever held.  My first job after receiving my accounting degree from Clark University was as an accountant for a local travel agency.  I stayed on with the hotel as the weekend night auditor for a year.  I am really glad that I had both of those jobs rather than going straight into public accounting, although I have to say that after 33 years public accounting has been good to me.

You can follow me on twitter @peterreillycpa.

Originally published on Forbes.com Mar 17th, 2013