Detailed Arkansas Development
In a recent Legal Opinion, an Arkansas Revenue Legal Counsel addressed the sales and use tax collection obligations of an online travel company (OTC) under two different models by which the company facilitates transactions with customers. Under the so-called agency model, the OTC facilitates reservations of accommodations and car rentals, but payments are made directly by customers to the accommodations operator or rental car provider. The providers subsequently pay commission to the OTC. In contrast, “merchant model” transactions are those for which the OTCs charge the traveler’s credit card an amount that includes the consideration the accommodation operator or rental car provider charges the customer, plus an amount to cover any taxes on that consideration. The charge also includes additional amounts retained by the OTCs for their services. The OTC does not purchase hotel rooms and then resell them to customers, and the OTC does not actually make reservations for customers. Reservations are made by the hotels or car rental agencies and are then forwarded to customers though the OTCs. The OTC requested a ruling as to whether it would be required to collect and remit Arkansas sales tax as a marketplace facilitator or accommodations intermediary on both the agency and merchant model transactions.
With respect to the agency model transactions where payment is made by the customer directly to the accommodations operator or rental car provider, Revenue Legal Counsel concluded that the OTC was not acting as a marketplace facilitator with respect to those transactions. However, under Arkansas law, accommodations intermediaries that arrange for the use of accommodations are treated as the seller of a taxable service and are required to collect sales taxes on the gross proceeds they receive from providing an accommodations service. When an OTC with a physical presence in Arkansas, or that is a remote seller with economic nexus furnishes an accommodation as an accommodations intermediary, the OTC owes tax on the gross receipts derived from the use of the accommodation.
With respect to the merchant model transactions, Revenue Legal Counsel concluded that the OTC is acting as a marketplace facilitator when it engages in transactions involving both accommodations and rental cars. Therefore, if the OTC meets the economic nexus thresholds for a marketplace facilitator, the OTC is required to collect and remit tax on the gross proceeds from such transactions, which includes the amount that the OTC charges a customer for its services. Please stay tuned to TWIST for additional developments addressing marketplace facilitator requirements.
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