## Facts

- Travelscape, LLC operated an online hotel-reservation business through Expedia using a “merchant model” and did not own or operate hotels.
- Travelscape contracted with South Carolina hotels for discounted “net rates,” then offered rooms to consumers at a higher total price.
- The consumer-facing price included the net rate plus a facilitation fee, a service fee (retained by Travelscape), and a tax recovery charge (based on the net rate).
- Travelscape charged the customer’s credit card; typically, the customer paid nothing to the hotel at check-in or checkout absent incidental purchases.
- After the stay, the hotel invoiced Travelscape for the net rate plus sales tax owed by the hotel; Travelscape remitted those amounts and kept its fees without collecting or remitting sales tax on the retained fees.
- The South Carolina Department of Revenue audited Travelscape for July 1, 2001 through June 30, 2006 and assessed accommodations/sales tax on the gross proceeds from South Carolina hotel reservations (including retained fees), plus penalties.
- Travelscape’s employees traveled into South Carolina to solicit and negotiate hotel agreements and maintain business relationships.

## Issues

1. Whether an online travel intermediary is a “person engaged … in the business of furnishing accommodations to transients for consideration” under S.C. Code Ann. § 12-36-920(A), making it liable for accommodations tax on the transaction’s gross proceeds, including its retained fees.
2. Whether applying the accommodations tax to Travelscape violates the Dormant Commerce Clause, including the “substantial nexus” requirement under the *Complete Auto* framework.

## Decision

- The South Carolina Supreme Court affirmed the Administrative Law Court’s decision upholding the tax assessment.
- The Court held Travelscape was engaged in the business of furnishing accommodations in South Carolina for consideration within § 12-36-920(A).
- The Court held “gross proceeds” from the rental transaction included the facilitation and service fees retained by Travelscape.
- The Court held the tax, as applied, did not violate the Dormant Commerce Clause because Travelscape had a sufficient nexus with South Carolina and the tax satisfied the *Complete Auto* requirements.
- The Court left undisturbed the ALC’s refusal to sustain certain penalties.

## Legal Principles

- An entity may “furnish” sleeping accommodations for purposes of a state accommodations tax even if it does not own or physically operate the lodging, where it sells the right to occupy the room in exchange for consideration.
- For accommodations taxes imposed on “gross proceeds” from rentals or charges, the taxable base may include intermediary markups and service-related fees when they are part of the amount paid by the consumer for the accommodations transaction.
- A state may impose sales/accommodations tax on an out-of-state seller consistent with the Dormant Commerce Clause where in-state contracting, solicitation, or other business activity creates substantial nexus and the tax is fairly apportioned, nondiscriminatory, and related to state-provided services.

## Conclusion

The court treated an online travel company operating under a merchant model as a taxable furnisher of South Carolina sleeping accommodations and required tax on the full consumer-paid amount, including retained fees, while rejecting a Dormant Commerce Clause challenge based on the company’s in-state contractual and business activities.


Travelscape, LLC v. S.C. Dep’t of Revenue, 391 S.C. 89, 705 S.E.2d 28 (S.C. 2011)