Court Opinion

ID: 2663166
Source: CourtListenerOpinion
Date Created: 2014-04-03 15:24:34.940673+00
Date Added: 2024-06-11T13:00:24.057419
License: Public Domain

IN THE SUPREME COURT, STATE OF WYOMING

                                        2014 WY 43

                                                       OCTOBER TERM, A.D. 2013

                                                               April 3, 2014

TRAVELOCITY.COM LP,
PRICELINE.COM INCORPORATED,
HOTELS.COM, LP, HOTWIRE, INC.,
EXPEDIA, INC., ORBITZ, LLC, AND
TRIP NETWORK, INC. (d/b/a
CHEAPTICKETS.COM),

Appellants
(Petitioners),                                     S-13-0078

v.

WYOMING DEPARTMENT OF
REVENUE,

Appellee
(Respondent).

      W.R.A.P. 12.09(b) Certification from the District Court of Laramie County
                       The Honorable Peter G. Arnold, Judge

Representing Appellants:
      Lawrence J. Wolfe, P.C., and Brynn A. Hvidston of Holland & Hart, LLP,
      Cheyenne, Wyoming; Jeffrey A. Rossman of McDermott Will & Emery LLP,
      Chicago, Illinois. Argument by Mr. Rossman.

Representing Appellee:
      Peter K. Michael, Wyoming Attorney General; Martin L. Hardsocg, Deputy
      Attorney General; Cathleen D. Parker, Senior Assistant Attorney General.
      Argument by Ms. Parker.

Before KITE, C.J., and HILL, VOIGT,* BURKE, and DAVIS, JJ.

*Justice Voigt retired effective January 3, 2014
NOTICE: This opinion is subject to formal revision before publication in Pacific Reporter Third.
Readers are requested to notify the Clerk of the Supreme Court, Supreme Court Building,
Cheyenne, Wyoming 82002, of any typographical or other formal errors so that correction may be
made before final publication in the permanent volume.
DAVIS, Justice.

[¶1] Appellee Wyoming Department of Revenue (Department) directed Appellants,
which are on-line travel companies (OTCs), to collect and remit tax on the total amounts
they collected from customers booking hotel rooms in Wyoming. Appellants appealed
the order to the State Board of Equalization (SBOE), which upheld it. The OTCs
petitioned the First Judicial District Court for review, and it certified the case to this
Court, which accepted the certification.

[¶2] Appellants argue that Wyoming’s sales tax statutes do not reach the markup they
charge for a variety of reasons. They contend that application of Wyoming sales tax to
them violates the Dormant Commerce Clause, the Equal Protection Clause, and the Due
Process provisions of the United States Constitution. They also urge us to find that it
violates the federal Internet Tax Freedom Act. We affirm the State Board of
Equalization.
                                       ISSUES

[¶3] Appellants raise the following issues, which we have rephrased and regrouped
somewhat:1

                1.     Did the SBOE err in finding that the full amount paid
                to the OTCs for a reservation of a hotel room in Wyoming
                was taxable by the Department because:

                a.     It concluded that the OTCs are “vendors” of lodging
                services under Wyoming Statute § 39-15-101 et. seq.?

                b.     It concluded that the amount the OTCs consider to be
                “online reservation facilitation fees” were instead part of the
                sales price for “lodging services” under Wyoming’s sales tax?

                c.     It concluded that the amount the OTCs believe to be a
                service fee is taxable in Wyoming?

                2.     Does the Department’s imposition of sales tax on the
                full amount the OTCs collect violate the Dormant Commerce
                Clause of the United States Constitution?

1
  In the SBOE proceedings, Appellants argued that the Department is estopped from taking the action it
did. They have not raised that issue in this appeal, although the Department did brief it. Despite the fact
that some of Appellants’ arguments hint at estoppel, we will not address that issue because it is not raised
directly.

                                                      1
              3.    Does imposition of the sales tax on the full amount the
              OTCs collect violate the Equal Protection Clause of the
              United States Constitution?

              4.     Does imposition of the sales tax on the full amount the
              OTCs collect violate the Due Process Clause of the United
              States Constitution?

              5.    Does imposition of the sales tax violate the Internet
              Tax Freedom Act?

[¶4] The Department generally identifies the same issues, although it frames them in
the “deep issue” format recommended by one legal scholar.2

                                           FACTS

[¶5] The facts of this case are not in dispute. The OTCs are on-line travel companies.
They host travel websites through which the public may book hotel rooms, airline
reservations, rental cars, and other travel-related services. This appeal involves only tax
on the Wyoming hotel rooms reserved through their websites.

[¶6] The parties agree that none of the OTCs, their employees or their servers are
located in Wyoming. They do not own or control any hotels in this state.

[¶7] Hotels typically employ revenue managers who set and adjust room rates and
select the distribution channels necessary to secure reservations. If they anticipate a need
to use intermediaries like the OTCs to fill rooms, they enter into agreements to allow
them to market reservations for a certain number of rooms at a certain rate. The hotel
controls the price and availability of rooms. Major hotel brands have a central
reservation system through which the OTCs can determine the rates and available rooms
they may offer to potential guests. Hotels without central reservation systems can use the
OTCs’ extranet service to upload this data. Hotels can increase or decrease the number
of reservations available to OTCs or close them out entirely.

[¶8] The OTCs collect a wide variety of hotel information and publish it on their
websites so that travelers can plan trips through one source. Customers can search for
lodging using a variety of parameters. The customer must accept the OTCs’ terms and
conditions, as well as the OTC/hotel cancellation policies and other rules and restrictions.

2
 Bryan A. Garner, The Deep Issue: A New Approach to Framing Legal Questions, 5 Scribes J. Legal
Writing 1 (1994-95).

                                               2
[¶9] There are five “models” by which hotel rooms are rented. The first three are not at
issue in this appeal. First, the hotel may simply rent the room itself, and the entire
transaction is taxed at a maximum of 10% under current rates.3 Second, a travel agent
may book the room for a traveler. In that kind of transaction, called the “agency model,”
the hotel charges the traveler for the room and pays tax on the entire room rental, but
remits a commission to the travel agent. The amount of the agent’s commission is
therefore taxed, because it is paid from the total room rate. The modified merchant
model, the third variant, is similar to the agency model. In it, the customer pays the OTC
to occupy a room with a credit card, and the OTC also collects tax on the full amount of
the rental. The OTC then remits all of the funds received to the hotel, which pays the
OTC a commission, and the hotel pays tax on the entire amount paid by the customer to
the OTC.

[¶10] The controversy in this case involves the merchant model, which comprises the
majority of the OTCs’ business. In it, the OTC collects the net rate the hotel has agreed
upon, the amount of tax estimated on the net rate, and what the OTCs call a “service” or
“facilitation” fee. 4 The putative service fee is a markup from the net rate the hotel has
agreed to plus the tax on that base rate. The parties sharply disagree as to what this
difference should be called because it may affect the outcome, and in an effort to use
neutral terminology, we will refer to it as “the markup.” If the guest utilizes the
reservation, the hotel bills the OTC, and the OTC pays it the net rate plus the estimated
tax. The OTC retains but does not pay Wyoming sales tax on the markup. The hotel pays
the state or local taxing authority (in this case Wyoming) the tax due on its net rate.

[¶11] Under the merchant model, the hotel is not informed of the total amount paid to
the OTC by the customer for a reservation. The customer is not informed of the net rate
the hotel has agreed upon or the amount of tax collected upon it. Without conducting an
audit, state and local taxing authorities, including the Wyoming Department of Revenue,
cannot determine the basis for the tax collected on each transaction. Only the OTC
knows how much its markup is.

[¶12] The “opaque” model is also used by certain of the OTCs. This is a variant of the
merchant model. In it, the customer does not learn the identity of the hotel until the
reservation is made and payment is received. Reservations cannot generally be cancelled
and it is nearly impossible to obtain a refund. The OTC remits the net rate and the
estimated tax on that amount before the date of the traveler’s stay. The OTC has the
exclusive right to make exceptions to the no-refund policy. The OTCs retain the markup

3
  Wyoming law provides for maximum sales tax of 6%, including local option taxes, and counties may
also impose an additional tax of 4% for lodging services. Wyo. Stat. Ann. § 39-15-103(a)(i)(G), § 39-15-
203(a)(ii), and § 39-15-204(a)(ii) (LexisNexis 2013). The parties have used the terms “sales” and
“lodging” tax interchangeably, as we will.
4
    We also use these terms interchangeably.

                                                    3
and do not pay sales tax on it, so the tax issues are the same as with the merchant model,
and they will not be discussed separately.

[¶13] The following chart illustrates the Department’s view of the five models, utilizing
a hypothetical net rate of $80.00, tax rate of ten percent, and a hypothetical difference
between net rate and what the customer actually pays.

Model                   Gross Amount Paid Net Rate Charged by Taxes
                        by Customer       Hotel
Direct Rental by        $100              $100                $10
Hotel
Agency (Travel          $100                     $80                          $10
Agent or OTC)
Modified Merchant       $100                     $80                          $10
Merchant and            $100                     $80                          $8
Opaque

In this example, the OTCs would receive $20.00 in untaxed revenue, resulting in a $2.00
difference in tax paid from that paid under the other models.

[¶14] The parties agree that although the hotel is obligated by its contract with the OTC
to provide a room of a certain type and quality, the hotel assigns the room and charges for
any services not included in the rate, including meals, health club access, etc. The OTC
has no voice in the room assignment. The parties also agree that the customer can only
obtain a refund from the OTC under the merchant model – the hotel cannot grant a
refund.

[¶15] The OTCs have been very successful, and their success has not gone unnoticed by
state and local taxing authorities. See, e.g., Scott M. Susko and Lucia Cucu, State and
Local Governments Turn to Online Business for Tax Revenue in an Attempt to Remedy
Budget Shortfalls, 19 J. Multistate Taxation and Incentives (Sept. 2009). As will be
addressed in further detail, the taxing authorities generally argue that tax should be paid
to them based on the gross amount the customer pays for a room, while the OTCs
contend that the markup is not taxable by the state or local government entity in which
the hotels are located because it is a service fee.

[¶16] The Administrator of the Wyoming Department of Revenue’s Excise Tax Division
met with Natrona County officials, several interest groups, and representatives of
Appellees Orbitz and Travelocity in February of 2010. The OTCs explained the
merchant business model and expressed their view that Wyoming could not tax what they
call the service fee on a hotel transaction. The Department thereafter directed a number of
OTCs to license with Wyoming as vendors and to collect and remit taxes on the full
amount paid by customers who reserve rooms in Wyoming.

                                             4
[¶17] The OTCs appealed the Department’s decision to the SBOE. The parties were
able to stipulate to some of the facts and to the record to be considered by the SBOE, and
therefore simply argued the case rather than presenting live testimony. In a thoughtful
38-page decision containing detailed findings of fact and conclusions of law, the SBOE
concluded as follows:

       1.      Wyoming’s sales tax statutes require the Department to impose tax on the
entire amount paid by the consumer for a reservation. The statutes also require OTCs to
collect this tax and remit it to the Department.

       2.      Taxation of the entire amount paid by the customer for the reservation does
not violate the Dormant Commerce Clause of the United States Constitution.

           3.      Wyoming’s sales tax statutes are not void for vagueness.

       4.     Wyoming’s sales tax statutes do not violate the Due Process or Equal
Protection clauses of either the federal or Wyoming constitutions.

           5.      Wyoming’s sales tax statutes do not violate the Internet Tax Freedom Act.

     6.      The Department is not equitably estopped to collect sales tax on the entire
amount paid for the reservation because it has not collected it in the past.

[¶18] Based upon these conclusions, the SBOE affirmed the Department’s decision that
the OTCs were required to register as vendors and to remit sales tax upon the entire
amount paid by customers who reserve lodgings in Wyoming. The OTCs timely
petitioned the district court for Laramie County for review of the SBOE decision. The
parties then moved the district court for an order certifying this case for direct review
under Wyoming Rule of Appellate Procedure 12.09(b). The district court concluded that
the case met the criteria set forth in the rule and certified it to this Court, and we accepted
it.5

5
    Rule 12.09 sets the following criteria for certifying a case after a petition for review is filed:

                   In determining whether a case is appropriate for certification, the district
                   court shall consider whether the case involves:
                           (1) a novel question;
                           (2) a constitutional question;
                           (3) a question of state-wide impact;
                           (4) an important local question which should receive
                   consideration from the district court in the first instance;
                           (5) a question of imperative public importance; or
                           (6) whether an appeal from any district court determination is
                   highly likely such that certification in the first instance would serve the

                                                           5
                                         DISCUSSION

I.     Issues Relating to Wyoming’s Sales Tax Statutes

[¶19] The first set of issues presented by the OTCs requires us to interpret Wyoming’s
sales tax statutes to determine whether the legislature intended to tax the portion of the
gross room rate we have called the markup. The construction and interpretation of
statutes applied by an agency is a question of law, and our standard of review is de novo,
as it is for all issues of statutory interpretation. Lance Oil & Gas Co. v. Wyo. Dep’t of
Revenue, 2004 WY 156, ¶ 3, 101 P.3d 899, 901 (Wyo. 2004) (quoting Wyodak Res. Dev.
Corp. v. Wyo. Dep’t of Revenue, 2002 WY 181, ¶ 9, 60 P.3d 129, 135 (Wyo. 2002));
Rock v. Lankford, 2013 WY 61, ¶ 17, 301 P.3d 1075, 1080 (Wyo. 2013) (citing Redco
Const. v. Profile Props., LLC, 2012 WY 24, ¶ 26, 271 P.3d 408, 415 (Wyo. 2012)).

[¶20] As we have observed:

               In interpreting statutes, our primary consideration is to
               determine the legislature’s intent. All statutes must be
               construed in pari materia and, in ascertaining the meaning of
               a given law, all statutes relating to the same subject or having
               the same general purpose must be considered and construed
               in harmony. Statutory construction is a question of law, so
               our standard of review is de novo. We endeavor to interpret
               statutes in accordance with the legislature’s intent. We begin
               by making an inquiry respecting the ordinary and obvious
               meaning of the words employed according to their
               arrangement and connection. We construe the statute as a
               whole, giving effect to every word, clause, and sentence, and
               we construe all parts of the statute in pari materia. When a
               statute is sufficiently clear and unambiguous, we give effect
               to the plain and ordinary meaning of the words and do not
               resort to the rules of statutory construction. Moreover, we
               must not give a statute a meaning that will nullify its
               operation if it is susceptible of another interpretation.

                      Moreover, we will not enlarge, stretch, expand, or
               extend a statute to matters that do not fall within its express
               provisions.

               interests of judicial economy and reduce the litigation expenses to the
               parties.

W.R.A.P. 12.09(b).

                                                  6
                     Only if we determine the language of a statute is
              ambiguous will we proceed to the next step, which involves
              applying general principles of statutory construction to the
              language of the statute in order to construe any ambiguous
              language to accurately reflect the intent of the legislature. If
              this Court determines that the language of the statute is not
              ambiguous, there is no room for further construction. We will
              apply the language of the statute using its ordinary and
              obvious meaning.

                      Whether a statute is ambiguous is a question of law. A
              statute is unambiguous if reasonable persons are able to agree
              as to its meaning with consistency and predictability, while a
              statute is ambiguous if it is vague or uncertain and subject to
              varying interpretations.

Redco Const., ¶ 26, 271 P.3d at 415-16 (citations & internal quotation marks omitted).

A.     Wyoming’s Taxation System

[¶21] Before determining the scope of Wyoming’s sales tax, we must first review the
statutory scheme and the Department’s rules and regulations. The applicable statute
imposes tax on “[t]he sales price paid for living quarters in hotels, motels, tourist courts
and similar establishments providing lodging service for transient guests.” Wyo. Stat.
Ann. § 39-15-103(a)(i)(G) (LexisNexis 2013). Wyoming law also permits counties to
impose an additional excise tax of up to four percent on “the sales price paid for lodging
services.” Wyo. Stat. Ann. §§ 39-15-203(a)(ii), 204(a)(ii).

[¶22] The event to be taxed is the sale, i.e., the retail customer’s payment in exchange
for taxable goods or services. Wyo. Stat. Ann. § 39-15-103(b)(i), (c)(ii); Buehner Block
Co., Inc. v. Wyo. Dep’t of Revenue, 2006 WY 90, ¶ 7, 139 P.3d 1150, 1152 (Wyo. 2006).
Wyoming tax law defines “taxpayer” as “the purchaser of tangible personal property,
admissions or services which are subject to taxation under this article.” Wyo. Stat. Ann. §
39-15-101(a)(x). The purchaser (or transient guest in this case) is the “taxpayer,” who is
required to pay tax on the “sales price paid for living quarters.” Wyo. Stat. Ann. § 39-15-
103(a)(i)(G).

[¶23] The sales tax is not imposed upon vendors of goods and services. A vendor is,
however, required to collect and remit taxes to the Department and is liable for failure to
do so. Wyo. Stat. Ann. § 39-15-103(c). See Stagner v. Wyo. State Tax Comm’n, 682 P.2d
326, 328-29 (Wyo. 1984) (holding that incidence of tax on sale of cigarettes was on the
retail purchaser and rejecting the argument that the legislature intended to shift incidence

                                              7
of tax to wholesaler). Under Wyoming’s tax code, “vendor” is defined as “any person
engaged in the business of selling at retail or wholesale tangible personal property,
admissions or services which are subject to taxation under this article.” Wyo. Stat. Ann. §
39-15-101(a)(xv).

B.     OTCs as Vendors

[¶24] As they have in other jurisdictions, the OTCs argue that they are not “vendors”
because they do not qualify under the plain language of the Wyoming sales tax statutes.
The SBOE concluded that the OTCs are not “purchasers” of lodging services because the
only person who fits the definition of that term in these transactions is the transient guest.
No one has challenged that conclusion in this appeal.

[¶25] In order to be required to remit tax, therefore, the OTC must be a vendor, which,
as noted above, “is any person engaged in the business of selling at retail or wholesale
tangible personal property, admissions or services which are subject to taxation . . . .”
Wyo. Stat. Ann. § 39-15-101(a)(xv). The OTCS point out that the sales tax statute
defines “lodging service” as “the provision of sleeping accommodations to transient
guests.” Wyo. Stat. Ann. § 39-15-101(a)(i). They contend that the dictionary definition
of “provision” means “the act or process of providing,” that “to provide” is synonymous
with “to supply and make available,” and that “supply” means to “make available for
use,” quoting the Merriam Webster Online Dictionary (2010) and the Collins English
Dictionary (9th ed. 2009).

[¶26] From this premise, the OTCs argue that the statute does not by its terms apply to
them because they are not hotels and do not provide lodging services – the hotels, they
say, do that. They contend that the Department’s own rules support this conclusion
because they provide that only “lodging establishments” providing “lodging services” can
be liable as “vendors,” citing Wyoming Department of Revenue Rules and Regulations,
Chapter 2. They also refer us to the Department’s 2010 “Sales, Use, and Lodging Tax
Guidelines for the Hospitality Industry,” which use terms such as “hotelier,” and “lodging
facility” to refer to entities which have an obligation to collect tax on lodgings.

[¶27] The OTCs also correctly note that other courts have held that OTCs are not
vendors or in the business of providing lodging services under particular taxing statutes
and ordinances. Those cases include Pitt County v. Hotels.com, L.P., 553 F.3d 308, 313
(4th Cir. 2009) (OTCs are not hotel “operators” because they do not physically provide
the rooms and have no role in the day-to-day management of the hotels);
Louisville/Jefferson County Metro Gov’t v. Hotels.com, L.P., 590 F.3d 381, 387 (6th Cir.
2009) (OTCs are not accommodation businesses that are similar to hotels and motels
because they do not physically control or furnish the rooms they advertise, nor do they

                                               8
make rooms physically available to guests); and City of Columbus v. Hotels.com, L.P.,
693 F.3d 642, 649 (6th Cir. 2012).6

[¶28] For all of these reasons, the OTCs claim that “vendors” must own or possess the
lodgings they provide to guests. Therefore, they conclude, the SBOE erred in finding
them to be vendors who must remit tax.

[¶29] The Department argues that the plain language of the statutes cause excise taxes to
fall upon the price paid for hotel rooms, not just upon the lesser amount paid to the
hotels. See Wyo. Stat. Ann. §§ 39-15-103(a)(i)(G), (c)(i), (c)(ii). It agrees that the
purchaser of services—in this appeal the transient guest—is the subject of the tax. Wyo.
Stat. Ann. §§ 39-15-103(b)(i), (c)(ii). However, it asserts that the OTCs are vendors who
are required to collect and remit the proper amount of tax. Wyo. Stat. Ann. § 39-15-
103(c)(i). The Department contends that the pivotal question in this appeal is not
whether OTCs physically operate hotels, but rather whether OTCs sell hotel rooms at
retail.

[¶30] The Department concedes that the rulings cited by the OTCs are correct so far as
they go, but argues that they do not offer meaningful guidance because they involve tax
statutes and ordinances which are different from Wyoming’s. They point out that the
OTCs’ challenges have been successful when the tax statute or ordinance defines vendors
as operators of hotels. They note that the OTCs were successful in Florida, where the tax
is imposed upon the privilege of operating a hotel.7 They agree that an Alabama court
has held that the OTCs cannot be taxed under a statute similar to Florida’s, citing City of
Birmingham v. Orbitz, Inc., 93 So. 3d 932, 935 (Ala. 2012) (citing Ala.Code § 40-26-
1(a)). The OTCs have also succeeded in challenging taxation under ordinances in Ohio
(vendor is defined as the “owner or operator of a hotel,” Findlay Ord. § 195.03(d)), North
Carolina (“retailers” who must collect tax are defined as operators of hotels, etc., N.C.
Gen. Stat. § 105-164.4(a)(3)); California (“operator” is the proprietor of a hotel); Texas
(person owning, managing, or controlling a hotel must collect tax); and New Mexico
(vendor is “a person furnishing lodging). 8 The Department also concedes that OTCs have

6
  We are also referred to a number of state and federal trial court decisions favoring the OTCs’ position,
including City of Gallup v. Hotels.com, L.P., No. 06-CV-0549, *5-6 (D.N.M. Jan. 30, 2007); City of
Gallup v. Hotels.com, L.P., No. 07-cv-00644, at *4-5 (D.N.M. Mar. 1, 2010); City of Philadelphia v. City
of Philadelphia Tax Review Bd., Mar. Term 2010 No. 00764 (Phila. C.P. Jan. 14, 2011), affirmed City of
Philadelphia v. City of Philadelphia Tax Review Bd., 37 A.3d 15, 21 (Pa. Commw. Ct. 2012); Orange
County v. Expedia, Inc., No. 48-2006-CA-2104-0, at 18-22 (Orange County Cir. Ct., Jan 20, 2011).
7
 Alachua Cnty. v. Expedia, Inc., 110 So. 3d 941, 946-47 (Fla. Dist. Ct. App. 2013); Orange Cnty. v.
Expedia, Inc., 2006-CA-2104-0, *27 (Fla. Cir. Ct. June 22, 2012); Leon Cnty. v. Expedia, Inc., 2009 CA
4319 (Fla. Cir. Ct. May 8, 2012).
8
 City of Findlay v. Hotels.com, L.P, 441 F. Supp. 2d 855, 859 (N.D.Ohio 2006); Pitt Cnty. v. Hotels.com,
L.P., 553 F.3d 308, 314-15 (4th Cir. 2009); Transient Occupancy Tax Cases, JCCP 4472, *56 (Cal.

                                                     9
not been subject to taxation on what they call a service fee in states in which the tax is
based on the amounts received by the hotel providing the room.9

[¶31] However, the Department contends that the definition of “vendor” under
Wyoming’s tax statutes is similar to that contained in the statutes and ordinances of states
involved in other cases in which the gross amount received by the OTCs was held to be
taxable. In City of Charleston, S.C., v. Hotels.com, LP, 520 F. Supp. 2d 757 (D.S.C.
2007), the OTCs claimed that they were not liable for taxes because they did not
physically furnish hotel rooms. The court did not agree that the OTCs were “merely an
intermediary between hotels and customers.” Id. at 767-68. It concluded that the focus
of the tax statute was on the entity accepting the consideration and not on the person or
organization physically providing the hotel room:

                [T]he core purpose of the Ordinances is to levy a tax on the
                amount of money visitors to the municipality spend on their
                hotel rooms or other accommodations. What is relevant, then,
                is not who is actually performing the upkeep of the room, but
                rather who is accepting money in exchange for “supplying”
                the room.

Id. at 768. The court further reasoned that if customers go to an OTC website, “use it to
book a hotel room, pay the website directly, and never pay the hotel, or interact with the
hotel at all until they arrive, the court cannot accept Defendant’s assertion that they do
not furnish accommodations to customers.” Id. In response to the OTCs’ motion to
reconsider, the court again disagreed with the OTCs’ claims that they did not furnish
rooms to their customers. City of Charleston, S.C. v. Hotels.com, LP, 586 F. Supp. 2d 538
(D.S.C. 2008).

[¶32] The South Carolina Supreme Court also ruled that the OTCs’ hotel transactions
were subject to state tax upon the gross proceeds charged. Travelscape, LLC v. S.C.

Super. Ct. Feb. 1, 2010); City of Orange, Tex. v. Hotels.com, No. 1:06-CV-413, 2007 WL 2787985, *5
(E.D. Tex. Sept. 21, 2007) (citing Tex. Tax Code Ann. § 351.002(a)); City of Gallup v. Hotels.com, L.P.,
No. 06-0549-JC, 2007 WL 7212855, *3 (Dist. N.M. Jan. 30, 2007).
9
  Louisville/Jefferson Cnty. Metro Gov’t v. Hotels.Com, 590 F.3d 381 (6th Cir. 2009) (Ky. Rev. Stat. Ann.
§ 91A.390(1) imposed tax on amounts charged by entities “doing business as . . . hotels); City of
Philadelphia v. City of Philadelphia Tax Review Bd., No. 00764 (Pa. Ct. Com. Pl. Jan 14, 2011)
(Philadelphia Code § 19-2402(1) taxed “the consideration received by each operator of a hotel”); Mayor
& City Council of Baltimore v. Priceline.com, Inc., Case No. MJG-08-3319, 2011 WL 9961251, *7 (D.
Md. Aug. 2, 2011) (tax imposed by original ordinance on the amount paid to the “owner or operator of a
hotel”). In the last case, a revised Baltimore ordinance expanded the definition of “owner or operator” to
include brokers, service providers or other intermediaries with which a hotel has contracted to arrange for
rental of a hotel room. The court concluded that sales tax was due on the gross amount paid to Priceline.
Id. at *8.

                                                     10
Dep’t of Revenue, 705 S.E.2d 28, 32-33 (S.C. 2011). The court rejected the OTCs’
contention that they did not operate hotels and that they therefore did not “furnish”
rooms. Id. at 34-35. It reasoned that the tax was not imposed upon the operators of
hotels, but instead upon those who received money in exchange for selling rooms. Id. at
35.

[¶33] The United States District Court for the Northern District of Illinois likewise
rejected the OTCs’ argument, explaining that: “To determine the kind of tax applicable to
a particular transaction, the Court examines the ‘totality of the transaction,’ not the labels
the parties give to it.” Vill. of Rosemont, Ill. v. Priceline.com Inc., 09 C 4438, *8, 2011
WL 4913262, *5 (N.D. Ill. Oct. 14, 2011). The ordinance in that case required the owner
of a hotel or motel to collect the tax, but defined “owner” broadly to include any person
“receiving the consideration for the rental of such hotel or motel room.” Id. at *2, 2011
WL 4913262 at *1.

[¶34] The District of Columbia Superior Court reached the same conclusion, interpreting
statutes generally similar to Wyoming’s. District of Columbia v. Expedia, Inc., 2011-
CA-002117-B (D.C. Super. Ct. Sept. 24, 2012). The statute applied to all vendors “for
the privilege of selling certain selected services,” which was defined to include hotel
room. It distinguished between providing lodging and selling lodging as a service,
stating that “the more important observation is that it is not the provision of the service
itself that is taxable. Rather, § 47-2001 explicitly levies the tax on the transaction; the
‘sale or charge’ for the service.” Id. at *13. The court added, “[T]he tax is levied on the
overall monetary value of the transaction.” Id. at *14.

[¶35] It is clear that whether the putative service fee is taxable because the OTCs are
vendors is governed by the precise language of the taxing ordinance or statute. Even
though the OTCs do not physically assign rooms and hand out keys, they contract with
the hotels that do, and they have authority to rent those rooms at a price they establish.
As we have already noted, the Wyoming sales tax statute applies to “the sales price paid”
for lodging services. This language compels the same result as the cases just cited.

[¶36] The contracts between the OTCs and hotels also support the argument that the
OTCs are vendors under Wyoming tax law. The hotels commit or assign a certain
number of specific types of rooms to the OTCs at a discount rate for subsequent sale.
The OTCs retain the right to sell the right to occupy the room at a markup. Although
they differ in precise verbiage, all of the contracts contain generally similar terms.

[¶37] Before the OTC sales tax cases arose around the nation, the OTC/hotel contracts
used language indicating that OTCs sold rooms. In 2003, Appellant Orbitz referred to
committed rooms as “inventory,” and agreed that it would “sell Rooms, on a prepaid
basis.” Hotwire’s early contracts indicated that it would “sell rooms” and that hotels
would “provide rooms for sale.” Travelocity contracts allowed it to use the net rates “to

                                               11
sell Rooms.” Hotels.com entered into agreements to “offer and sell unbundled Rooms”
that were referred to as inventory. Priceline contracts indicated that it would “sell Hotel
Rooms.” Press releases from the pre-tax conflict period describe increasing sales of hotel
rooms and other travel services.

[¶38] The OTCs’ representations to the Securities and Exchange Commission before the
sales tax issues arose around the country are also telling. The following is from a letter
containing Priceline’s comments on its Forms 10-K and 10-Q for 1984:

              The Company does have unfettered latitude in establishing
              price. The Company is unconstrained in choosing the gross
              margin or mark-up that it charges for its services. . . .
                                         . . .

              [T]he Company is able to charge its customers a significant
              mark-up versus cost and generate substantial gross profits.
              The Company’s gross margins are well in excess of the types
              of fixed commissions that a typical travel agent earns for
              selling a widely available retail product.

This language is consistent with a sale.

[¶39] The 10-K forms filed by Orbitz in 2003 and Travelocity in 2001 both describe
their attempts to obtain inventory, acknowledging at the very least that they own
something which can be sold. Similar disclosures were filed by Expedia, Hotels.com,
and Priceline during this period. After the tax litigation began around 2006, the OTCs
began to characterize themselves as seeking reservations on a customer’s behalf and
receiving a service fee for their efforts, as they do in their brief in this case. However, the
OTCs admit that the merchant model still operates exactly as it did before.

[¶40] Finally, a dissatisfied customer must seek a refund from the OTC and not the hotel
under the merchant model. Customers may only cancel reservations through the OTC
contact points, and not through the hotel. Under the opaque model, only the OTCs have
authority to determine exceptions to the no-refund policy. The OTCs, not the hotels, thus
control the financial aspects of the transaction completely.

[¶41] The Department’s position is supported by the specific language of the Wyoming
sales tax statutes, persuasive case law from other state and federal courts, and the OTCs’
own description of their business before the sales tax litigation created incentives to
characterize the transactions otherwise. We therefore conclude they are “vendors” for

                                               12
purposes of the Wyoming sales tax while operating under the merchant or opaque
models.10

C.      Claimed Service Fee vs. Rental Charge

[¶42] In a closely-related argument, the OTCs claim that the law does not require them
to pay tax on the markup because it is a separate facilitation or service fee. They argue
that the sales tax is only levied upon the “sales price” paid for a hotel room. Wyo. Stat.
Ann. § 39-15-103(a)(i)(G). They contend that the traveler really pays the OTCs for the
service they provide in helping him find a hotel, as he can research, plan a trip, and book
the necessary travel arrangements.

[¶43] The OTCs point to Department Rules stating that “[t]he total amount charged
transient guests for board or room or both is subject to the sales tax and any local option
lodging tax.” Rules, Wyo. Dep’t of Revenue, Sales & Use Tax, ch. 2 § 15(r)(i) (2006).
The items taxed must be “furnished in connection with the lodging service,” such as
“room service meals.” Id. Charges for facilities not used for lodging, such as meeting
rooms, sample rooms, and ballrooms are exempt from the tax. They argue that the sales
tax is limited to the “sales price paid for living quarters,” meaning the net rate the hotel
receives from them. The OTCs also point out that they collect money from travelers
before the room will be used, separating their receipt of the fee from the lodgings actually
provided. They contend that there is no room rental to tax when they receive the money.

[¶44] The Department again points to the statutory language, arguing that it is clear.
Wyo. Stat. Ann. § 39-15-101(a)(viii)(A) defines “sales price” as “the total amount or
consideration, including cash, credit, property and services for which personal property or
services are sold . . . .” The Department’s rules further specify that, “[t]he total amount
charged transient guests for board or room or both is subject to the sales tax and any local
option lodging tax.” Rules, supra, ch. 2, § 15(r)(i) (emphasis added). Rules adopted
pursuant to an agency’s statutory authority, and properly promulgated, have the force and
effect of law. State ex rel. Dep’t of Revenue v. Buggy Bath Unlimited, Inc. 2001 WY 27,
¶ 19, 18 P.3d 1182, 1188 (Wyo. 2001).

[¶45] The Department reminds us that in Lance Oil & Gas Co. v. Wyoming Department
of Revenue, this Court explained that “price” meant “the full amount paid.” Lance Oil, ¶
13, 101 P.3d at 903. The SBOE cited that case in its decision, concluding that “[b]ecause
a transient guest purchases living quarters, the amount paid by a transient guest for living
quarters is subject to the tax.”

10
  Appellants refer us to the recent Montana district court decision in Montana Dep’t of Revenue v.
Priceline et al., CDV-2010-1056 (D.Ct. Lewis & Clark Cnty. Mar. 6, 2014). In that case the district court
held that the Montana Department of Revenue could not tax the facilitation or service fee under statutes
which are similar to Wyoming’s. The court’s analysis was limited, and we did not find it persuasive.

                                                    13
[¶46] In addressing an almost identical definition of sales price, the Superior Court of
the District of Columbia explained that “the ‘sale’ is the transaction or exchange that
occurs between the parties, and the ‘charge’ is most naturally read to mean ‘the price
asked for something.’” District of Columbia v. Expedia, Inc., supra, *13 (Sept. 24, 2012
order). The court rejected the OTCs’ redefinition of the sales price as something less
than the total consideration paid by the customer.

[¶47] In addition, the OTCs bundle all charges to prevent customers from learning the
net rate they have paid to reserve the room. Department Rules require that “[t]he entire
invoice amount shall be subject to the sales/use tax if the exempt charges are not
separately shown and distinguishable from taxable charges.” Rules, supra, ch. 2, § 9(a).11

[¶48] The OTCs argue in effect that the putative facilitation or service fee is an
exception from sales tax. As we have previously held, “[w]hen interpreting tax statutes,
there is a presumption against granting exceptions and in favor of taxation.” Laramie
Cnty. Bd. of Equalization v. Wyo. State Bd. of Equalization, 915 P.2d 1184, 1190 (Wyo.
1996). The OTCs have not identified an applicable statutory exception.

[¶49] Other tribunals have rejected the OTCs’ claim that the facilitation fee is exempt
from sales tax. In Travelscape, LLC, v. S.C. Dep’t of Revenue, No. 08 ALJ 17-0076-CC,
2009 WL 769017 (S.C. Admin. Law Ct., Feb. 12, 2009), aff’d Travelscape, LLC, v. S.C.
Dep’t of Revenue, 705 S.E.2d 28 (S.C. 2011), that administrative body ruled that a
“facilitation fee” was subject to tax. It explained that “[e]ven if Petitioner’s business is
characterized as a ‘service,’ the service it provides is by no means unrelated to the rental
of the hotel room.” Id. at *13. The South Carolina Supreme Court affirmed that
conclusion, holding that “[b]ecause the cost of services is specifically included in the
definition of gross proceeds of sales, we find the fees retained by Travelscape for its
services are taxable as gross proceeds.” Travelscape, 705 S.E.2d at 33.

[¶50] The District of Columbia Superior Court similarly concluded that “[t]he cost of
any ancillary services provided as part of the otherwise taxable sales transaction is
includable within the sales price . . . . The statute is designed to ensure taxation applies to
the entirety of the services being taxed.” District of Columbia v. Expedia, Inc., supra,
*14 (Oct. 12, 2011 order). An Illinois federal district court also found that the full
amount of the customer’s payment was subject to tax in Village of Rosemont, Ill. v.
Priceline.com Inc., 09 C 4438, 2011 WL 4913262 (N. D. Ill. Oct. 14, 2011). That court
found that “[w]hen the substance of a transaction is the sale or use of property and the
service provided is merely incidental to it, the entire transaction is subject to a sales or
use tax.” Id. at *9, 2011 WL 4913262 at *5. The court continued that “[the OTCs’]

11
  The Department referred us to the 2006 version of this rule. It was amended in 2012, but the
amendment did not change its meaning.

                                               14
facilitation of travel-related services . . . are incidental to the predominant purpose of the
online transaction – the rental of a hotel room.” Id.

[¶51] Other courts have pointed out that any other interpretation would permit hotel
operators to evade sales tax:

                     What makes far more sense is that the drafters
              intended the room occupant to pay tax on the amount she
              actually paid. A contrary holding, after all, would open up a
              potentially gaping loophole: a hotel operator could simply
              incorporate a shell entity or make some other similar
              arrangement, rent the hotel rooms to the entity for a nominal
              amount, and then re-rent the rooms to consumers, who would
              be taxed only on the nominal sum paid by the side entity to
              the operator. This tactic—permissible under the continuation
              of Defendants’ logic—would place the hotel operator at a
              competitive advantage, because it would either increase her
              profit margins or lower the cost of her rooms relative to her
              competitors. However, it would at the same time almost
              entirely eviscerate the Ordinance, and it cannot be what the
              drafters had in mind.

City of Fairview Heights v. Orbitz, Inc., No. 05-CV-840-DRH, 2006 WL 6319817, *5
(S.D. Ill. July 12, 2006); see also Columbus, Ga. v. Expedia, Inc., No. SU-06-CV-1794-7,
*51, 2008 WL 4448801 (Ga. Super. Ct. Sept. 22, 2008) (indicating that hotels might
avoid taxes through token payment to “collecting agent”), aff’d as modified, Expedia, inc.
v. Columbus, GA, 681 S.E.2d 122 (Ga. 2009); City of Chicago, IL v. Hotels.com, No.
2005 L. 051003, *19 (Ill. Cir. Ct. June 21, 2013) (concluding that the OTCs have in fact
created a shell game through use of the merchant model); N.M. Taxation & Revenue
Dep’t v. Barnesandnoble.com, LLC, 303 P.3d 824 (N.M. 2013) (not permitting on-line
company to avoid tax by creating a separate sister company for on-line purposes).

[¶52] The District of Columbia Superior Court concluded that the OTCs’ theory could
result in no tax due from anyone, a result clearly not intended by those drafting the
legislation. “No monetary transaction ever occurs between the hotels and the ultimate
purchaser and thus there is no sale, by the statutory definition, to tax. No tax would ever
be due on either of the transactions, a result plainly at odds with the structure and history
of the act.” District of Columbia v. Expedia, supra, *16 (Oct. 12, 2011 order). The same
is true of Wyoming’s tax structure.

[¶53] We find these authorities persuasive. Transient guests cannot obtain a hotel room
through an OTC using the merchant model without paying the price they set, and
therefore all charges for services are “charges by the seller for any services necessary to

                                               15
complete the sale,” which are not deductible from the taxable “sales price.” Wyo. Stat.
Ann. § 39-15-101(a)(viii)(A)(III). Anyone with internet access can find hotel rooms
using the OTCs’ websites, and he will pay nothing to do so, unless he actually decides to
reserve a room. The “service,” therefore, is free – the customer pays for a room. The
OTCs cannot change the nature of a payment by calling it something else in their
contracts.

[¶54] We see little difference between these transactions and sales by certain brick and
mortar merchants. A customer looking for a particular type of good may contact a local
merchant for help in locating what he needs. The merchant may show the customer
samples or catalogs to help him select a product, order it from a supplier, mark it up to
earn a profit, and sell it to the customer. The merchant could not seriously argue that he
is entitled to call the markup a “service fee” separate from the sales price.

[¶55] We conclude that the SBOE correctly found that the legislature intended the entire
amount the OTCs charge a customer to be subject to sales tax. The markup is not exempt
as a service or transaction fee because it is part of the sales price.

D.     OTC Sales as Subject To Wyoming’s Taxing Authority

[¶56] The OTCs contend that the transactions they enter into with customers are not
intended to be taxed by Wyoming’s tax statutes. They believe that the sales tax is
intended to reach a “quintessentially local transaction,” the rental of a hotel room in the
State of Wyoming. They correctly point out that their sites are more often than not used
by persons who do not reside in Wyoming, and as already noted, that their personnel and
servers are located in other states. The only thing that occurs in the state is the hotel’s
provision of a room to the traveler, on which tax has been collected (by the OTCs), paid
to the hotel, and remitted by the hotel to the Department.

[¶57] They also argue that Wyoming’s tax sourcing statutes compel the same
conclusion. Wyo. Stat. Ann. § 39-15-104(f)(i)(A) provides that when a “product is
received by the purchaser at a business location of the seller,” the sales tax must be
sourced to “that business location.” If a product is not received by the purchaser at the
seller’s business location, the sale must be sourced to the location where receipt by the
purchaser occurs. Id. at (f)(i)(B). To “receive” or “receipt” means “making first use of
services.” Id. at (f)(i)(F). From this, the OTCs argue that what they claim is a service fee
is not taxable because it is received outside of Wyoming, while the lodgings themselves
are the only thing received here. They contend that the sourcing rules, if interpreted as
the Department has, could make the entire transaction immune from Wyoming sales tax
because there would be no transaction between the hotel and the guests, which is all they
claim Wyoming can tax. This, they contend, cannot be what the legislature intended.

                                              16
[¶58] We do not find this argument persuasive. The term “product” includes services.
Wyo. Stat. Ann. § 39-15-104(f)(xvi)(C). We have already concluded that the OTCs sell
the right to occupy rooms in Wyoming. That service is delivered in Wyoming, and it is
taxable here under the sourcing rule.

E.     Board’s Deference to the Department’s Statutory Interpretation

[¶59] The OTCs argue that the SBOE erred in deferring to some degree to the
Department’s decision to tax the entire amount paid by customers to rent hotel rooms in
Wyoming as the interpretation of a statute by an agency charged with administering it.
We do not find it necessary to address this issue. We have interpreted the applicable
statutes de novo and arrived at the same conclusion the SBOE did without deferring to
the Department’s analysis.

F.     The Sales Tax As Ambiguous

[¶60] The OTCs argue that tax statutes must be construed strictly against the taxing
authority and that they will not be extended unless they contain plain language coupled
with a clear legislative intent, citing Amoco Prod. Co. v. Wyo. Dep’t of Revenue, 2004
WY 89, ¶ 18, 94 P.3d 430, 438 (Wyo. 2004), which in turn cites Chevron U.S.A. Inc v.
State, 918 P.2d 980, 985 (Wyo. 1996). Although they contend that the sales tax statutes
are clear, they claim in the alternative that they are ambiguous if they can be construed
against them in spite of the reasonable interpretation they urge upon us in this appeal.
They believe the Department’s failure to tax them sooner than it did is an indication of its
uncertainty as to the scope of its authority.

[¶61] The Amoco and Chevron cases deal with extension of taxing statutes by
implication. The basic rule was restated in Chevron U.S.A., Inc. v. Dep’t of Revenue,
2007 WY 43, 154 P.3d 331 (Wyo. 2007):

              In the interpretation of statutes levying taxes it is the
              established rule not to extend their provisions, by
              implication, beyond the clear import of the language used, or
              to enlarge their operations so as to embrace matters not
              specifically pointed out. In case of doubt they are construed
              most strongly against the government, and in favor of the
              citizen.

Id. at § 24, 154 P.3d at 339 (citation omitted). Cf. 3A Norman J. Singer and J.D. Sambie
Singer, Sutherland Statutory Construction § 66.2 (7th ed. updated 2013) (“tax laws ought
to be given a reasonable construction, without bias or prejudice against either the

                                              17
taxpayer or the state, in order to carry out the intention of the legislature and further the
important public interests which such statutes subserve.”).12

[¶62] Wyoming’s tax statutes are not ambiguous when read in their entirety and in pari
materia. We do not find the Department or SBOE to have extended them by implication.
We instead find that the Department applied the statutes in accordance with their express
terms.

G.      Double Taxation

[¶63] The OTCs argue that application of the above rules may result in double taxation,
as in their view the hotels also remain liable for tax on the rooms rented through their
websites. In its brief, the Department compares the OTC to a retail vendor and the hotel
to a wholesale vendor – i.e., in its view hotels “sell” rooms to the OTCs for resale at a
markup, which we have found to be correct. The OTCs claim that the Department’s
position would require both the retailer and wholesaler to collect and remit tax. They are
apparently concerned that the Department will attempt to collect the entire amount of tax
due on previous transactions from them, even though the hotel has already paid tax on its
net rate.

[¶64] As we interpret the Department’s position and the SBOE decision, the OTCs are
responsible for collecting tax on the entire amount paid by customers in the future. In its
briefing, the Department concedes that it can only collect the tax due on the difference
between gross rate and the net rate plus tax on past transactions. The Department may do
so under the sales tax statutes, and the complications resulting from the OTCs’ failure to
collect and pay tax in the past do not prevent an application of the tax to past and future
transactions.

II.     Validity of the Wyoming’s Sales Tax Under the Dormant Commerce Clause

[¶65] The OTCs contend that if the Wyoming sales tax applies to the markup, the
portion of the price they consider to be a service fee, then it violates the Dormant
Commerce Clause of the United States Constitution and is unenforceable as an
unreasonable interference with interstate commerce. The Commerce Clause is contained
in Article 1, Section 8, Clause 3 of the United States Constitution, and it grants Congress
the power “[t]o regulate Commerce with foreign Nations, and among the several States,
and with the Indian Tribes.” U.S. Const. art. 1, § 8.

[¶66] The Commerce Clause has been held to have a negative corollary. This negative
or dormant implication of the Commerce Clause prohibits state taxation or regulation that

12
  The rule against exceptions and the rule against extension by implication reinforce the requirement that
we must apply tax statutes as they are written.

                                                     18
discriminates against or unduly burdens interstate commerce and “thereby imped[es] free
private trade in the national marketplace.” Gen. Motors Corp. v. Tracy, 519 U.S. 278,
287, 117 S. Ct. 811, 818, 136 L. Ed. 2d 761 (1997) (quoting Reeves, Inc. v. Stake, 447 U.S.
429, 437, 100 S. Ct. 2271, 2277, 65 L. Ed. 2d 244 (1980)). Under the Articles of
Confederation, state taxes and duties hindered and suppressed interstate commerce, and
the Framers intended the Commerce Clause to be a cure for these structural ills. See
generally The Federalist Nos. 7, 11 (A. Hamilton) (cited in Quill Corp. v. N. Dakota by
& through Heitkamp, 504 U.S. 298, 312, 112 S. Ct. 1904, 1913, 119 L. Ed. 2d 91 (1992)).
The Commerce Clause and the nexus requirements we are about to address are informed
not so much by fairness to taxpayers as by structural concerns about the effects of state
regulation on the national economy. Quill Corp., id. The advent of the internet, which
allows merchants to send information to every jurisdiction in the world, has created
dormant commerce clause complications unimaginable a few decades ago. See, e.g., Jack
L. Goldsmith, Alan O. Sykes, The Internet and the Dormant Commerce Clause, 110 Yale
L.J. 785 (2001); Bradley W. Joondeph, Rethinking the Role of the Dormant Commerce
Clause in State Tax Jurisdiction, 24 Va. Tax Rev. 109 (2004).

[¶67] The parties agree that a state or local tax does not violate the Commerce Clause if
it meets four requirements identified in Complete Auto Transit, Inc. v. Brady, 430 U.S.
274, 279, 97 S. Ct. 1076, 1079, 51 L. Ed. 2d 326 (1977); see also Quill Corp., 504 U.S. at
310, 112 S. Ct. at 1912. Those requirements can be summarized as follows:

      1.     The tax must be applied to an activity with a substantial nexus to the taxing
             authority.
      2.     It must be fairly apportioned.
      3.     It cannot discriminate against interstate commerce.
      4.     It must be fairly related to the services provided by the State.

A.    Substantial Nexus

[¶68] Appellants argue that Wyoming lacks a nexus with the transactions that result in
rooms being rented in Wyoming because the sale occurs outside the state and therefore
outside Wyoming’s jurisdiction to tax. Although they acknowledge that the Department
only seeks to tax transactions involving hotel rooms in Wyoming, they contend that the
sale itself must occur in the jurisdiction seeking to tax it. They emphasize the undisputed
fact that the servers used to complete the transaction are not located in Wyoming, and
that the transfer of funds occurs in another state well before the customer will actually
occupy the room.

[¶69] In support of this argument, they cite McLeod v. J.E. Dilworth Co., 322 U.S. 327,
220-331, 64 S. Ct. 1023, 88 L. Ed. 1304 (1944). In that case, Tennessee corporations sold
machinery from their places of business in Tennessee to purchasers in Arkansas.
Arkansas levied a sales tax on the transaction. The United States Supreme Court held

                                             19
that Arkansas could not tax the sale because it occurred in Tennessee, although it might
have imposed a use tax on the enjoyment of the object purchased. Id. at 330-31, 64 S.Ct.
at 1025-26.

[¶70] Commerce Clause nexus has historically required some physical presence within
the taxing jurisdiction. Quill Corp., 504 U.S. at 310-13, 112 S.Ct. at 1912-13. A
taxpayer’s physical presence can be established by having independent contractors,
agents, or representatives conducting business within the state on behalf of an out-of-state
taxpayer. Tyler Pipe Indus., Inc. v. Wash. State Dep’t of Revenue, 483 U.S. 232, 250,
107 S. Ct. 2810, 2821, 97 L. Ed. 2d 199 (1987); Scripto, Inc. v. Carson, 362 U.S. 207, 210-
12, 80 S. Ct. 619, 621-22, 4 L. Ed. 2d 660 (1960). In the case of tax on an activity, there
must be a connection to the activity itself, rather than a connection only to the individual
or corporation the state seeks to tax. For example, if a company has its principal office in
State A, but provides services only in State B, allowing both states to tax the money paid
for the service could result in “severe multiple taxation.” Allied-Signal, Inc. v. Dir., Div.
of Taxation, 504 U.S. 768, 777-78, 112 S. Ct. 2251, 2258, 119 L. Ed. 2d 533 (1992). The
state’s power to tax individual or corporate activity must therefore be justified by the
protection, opportunities, and benefits the state confers on that activity. Id.

[¶71] More recently, courts have held that a nexus exists when a business’s activities
establish and maintain a market within the taxing state. Lamtec Corp. v. Dep’t of
Revenue, 246 P.3d 788, 795 (Wash. 2011) (citing Tyler Pipe, 483 U.S. at 250-51, 107
S.Ct. at 2821). This principle, as recognized in the Tyler Pipe case, is referred to as
“attributional nexus,” meaning “the attribution of certain in-state activities of one entity
to another out-of-state entity with no other contact with the state.” John B. Harper,
Nexus: Is it Contagious? Physical Presence by Hook or Crook—Origins of Attributional
Nexus and Its Application to Sales and Use Taxes—Part I of II, 26 J. State Taxation 19
(No. 4, May-June 2008).

[¶72] In affirming the validity of a tax assessment against an out-of-state taxpayer under
an attributional nexus standard, the Tyler Pipe court acknowledged that Tyler Pipe had no
office, no property, and no employees residing in the State of Washington. 483 U.S. at
249, 107 S.Ct. at 2821. However, the Court rejected Tyler Pipe’s nexus challenge on
grounds that it used independent contractors rather than employees.

              As a matter of law, the Washington Supreme Court concluded
              that this showing of sufficient nexus could not be defeated by
              the argument that the taxpayer’s representative was properly
              characterized as an independent contractor instead of as an
              agent. We agree with this analysis.

Id. at 250, 107 S.Ct. at 2821. See also, Scripto, Inc., 362 U.S. at 211, 80 S.Ct. at 621
(upholding the assessment of tax against a Georgia company filling orders in Florida

                                              20
when the “only incidence of this sales transaction that is nonlocal is the acceptance of the
order.”).

[¶73] Lamtec Corporation manufactured insulation and vapor barriers in New Jersey and
sold them nationwide. It sold over $9 million worth of products in Washington over a
six-year period. Its salesmen visited Washington two or three times per year.
Washington sought to tax the sales made to its citizens. Lamtec argued that it had to have
a physical presence in Washington for its sales to be taxed. Lamtec Corp., 246 P.3d at
790.

[¶74] The Washingon Supreme Court concluded that Lamtec’s activities there satisfied
the physical presence requirement: “It does not require a ‘presence’ in the sense of having
a brick and mortar address within the state.” Id. at 794-95. The court further concluded
that the qualifying activity did not have to be conducted by a business employee: “We do
not see a material difference whether the activities are performed by a staff permanently
employed within the state, by independent agents contracted to perform the activity
within the state, or persons who travel into the state from without.” Id. at 795. “[T]he
crucial factor governing nexus is whether the activities performed in this state on behalf
of the taxpayer are significantly associated with the taxpayer’s ability to establish and
maintain a market in [the] state for the sales.” Id. (quoting Tyler Pipe, 483 U.S. at 250-51,
107 S.Ct. at 2821); see also Arco Bldg. Sys., Inc., v. Chumley, 209 S.W.3d 63, 74-75
(Tenn. Ct. App. 2006) (holding that “the trial court did not err in considering Arco’s use
of the in-state manufacturer in determining that Arco has a ‘physical presence’ in
Tennessee”); State v. Dell Int’l, Inc., 922 So. 2d 1257, 1265 (La. Ct. App. 2006)
(“[H]aving BancTec contracted to provide on-site repair services on Dell computers in
this state was highly critical to Dell’s ability to . . . maintain a market in this state.”);
Orvis Co., Inc. v. Tax App. Trib. of State of N.Y., 654 N.E.2d 954, 960-61 (N.Y. 1995)
(explaining physical presence can be established through the conduct of economic
activities in the taxing state performed by the vendor’s personnel or on its behalf).

[¶75] There are two possible nexuses in this case: (1) contractual relationships between
the OTCs and Wyoming hotels, and (2) contractual relationships with “affiliates” or
“partners” located in Wyoming, which work with the OTCs to rent their inventory of
Wyoming hotel rooms.

[¶76] There is no dispute that the OTCs’ customers are able to rent a Wyoming hotel
room through the OTCs. The OTCs contract with hotels and specify the terms upon
which the hotels must accommodate customers, including requiring them to provide
rooms equal to those assigned to guests who book directly with the hotels. The hotel
staffs provide the services necessary for customers to utilize their rooms. The
Department argues that this creates an agency relationship, meaning that the OTCs would
have a physical presence in the state through these agents. The OTCs deny any such
relationship.

                                              21
[¶77] The OTC contracts do not characterize the hotels as agents. However, the United
States Supreme Court has observed that permitting “contractual shifts” by calling
salesmen in Florida “independent” to make a constitutional difference would lead to “a
stampede of tax avoidance.” Scripto, Inc., 362 U.S. at 211, 80 S.Ct. at 622. That Court,
like Judge Learned Hand in Bomze v. Nardis Sportswear, 165 F.2d 33, 36 (2d Cir. 1948),
did not believe “that it was important that the agent worked for several principals.”
Scripto, Inc., 362 U.S. at 211, 80 S.Ct. at 622. It described the proper test as “simply the
nature and extent of the activities of the appellant in Florida.” Id.

[¶78] Other courts have rejected the OTCs’ nexus argument. As the trial court explained
in Columbus, Ga. v. Expedia, Inc.: “Expedia has stepped into the shoes of the hotels as
the collecting agent for hotel occupancy taxes, and it is doing so pursuant to the terms of
its contracts.” Columbus, Ga. v. Expedia, Inc., supra, *45. The City of Chicago court
observed that, “[t]he contractual relationship between the hotels and OTC’s [sic] are, by
definition, governed by the rules of agency.” City of Chicago, supra, *28. The South
Carolina Supreme Court explained that “[f]or Commerce Clause nexus purposes, it
simply does not matter that Travelscape specifically disclaims any agency relationship
with the hotels in the contracts it enters into. Accordingly, we find Travelscape has a
physical presence within South Carolina [based on its relationship with hotels].”
Travelscape, LLC, 705 S.E.2d at 37 (citation omitted).

[¶79] In rejecting the OTCs’ argument that they had no nexus, the South Carolina
Supreme Court relied on facts indicating that: 1) the OTCs entered into contracts with
South Carolina hotels for the right to offer reservations across the state; 2) the hotels
agreed to accept a discounted rate for reservations made on the OTCs’ websites; and 3)
the customers actually stayed at hotels within the state. Id. “Like the corporations in
Tyler Pipe and Scripto, the services provided by the hotels are significantly associated
with Travelscape’s ability to establish and maintain a market in South Carolina for its
sales.” Id. The court recognized that the OTCs would be unable to conduct any business
in the state without the hotels actually providing the sleeping accommodations in the
state. Id. Even a witness for the OTCs, Dr. Chekitan Dev, admitted that “[a]n OTC
cannot exist without the hotel because they [sic] have nothing to sell.”

[¶80] The court in the City of Chicago case referred to above also ruled that the OTCs
had substantial nexus with the taxing jurisdiction. City of Chicago, supra, *30-32. It
outlined four factors establishing nexus: 1) the tax was borne by a lessee of the Chicago
hotel accommodations; 2) the purpose of the online transaction was to rent property in
Chicago; 3) the services provided by the Chicago hotels were “significantly associated”
with the OTCs’ ability to “establish and maintain a market in Chicago;” and 4) the OTCs
could not conduct business in Illinois without the local hotels. Id.

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[¶81] The OTCs also have “partners” or affiliates located in Wyoming. An example of
the OTCs’ use of a partner affiliate is Travelocity’s agreement with the Cheyenne Area
Convention and Visitors’ Bureau.          Consumers can visit the bureau’s website
(www.cheyenne.org) to book Wyoming hotel rooms. When a visitor does so, he uses a
booking engine owned by a division of Travelocity.com. Travelocity pays the bureau a
commission for every travel product sold by this means.

[¶82] Other courts have found these kinds of relationships sufficient to establish the
nexus required by Complete Auto. Amazon.com offers a similar affiliate program called
the “Associates Program” through which third parties agree to place links on their own
websites that direct users to Amazon’s website. Amazon.com LLC v. N.Y. State Dep’t of
Taxation & Finance, 877 N.Y.S.2d 842, 845 (N.Y. Sup. 2009). Like the OTCs’ partner
affiliates, Amazon’s associates earn commissions from sales resulting from the link.
Overstock.com also has a similar affiliates program. Overstock.com, Inc. v. N.Y. State
Dep’t of Taxation & Fin., 987 N.E.2d 621, 622-23 (N.Y. 2013). Both entities claimed
that the associates or affiliates were third-party contractors and that nexus was not
adequate for purposes of the Commerce Clause. Id. at 625; 877 N.Y.S.2d at 849. The
court in the Overstock case found a sufficient nexus because “through these types of
affiliation agreements, a vendor is deemed to have established an in-state sales force.”
987 N.E.2d at 626. The court also considered it significant that the vendor was not
required to pay the taxes out of its own pocket, but that the entities instead “are collecting
taxes that are unquestionably due.” Id. The Amazon.com court arrived at the same
conclusion. 877 N.Y.S.2d at 850.

[¶83] The facts the above courts relied upon to find a nexus through relationships with
hotels or affiliates and partners are also found in this case. We conclude that these
relationships provide a sufficient nexus to allow Wyoming to tax the rental of Wyoming
hotel rooms under the first prong of the Complete Auto test.

B.     Fair Apportionment

[¶84] The OTCs argue that the tax the Department seeks to levy on their sales is not
fairly apportioned under Commerce Clause analysis. A tax must be both internally and
externally consistent. Goldberg v. Sweet, 488 U.S. 252, 261, 109 S. Ct. 582, 589, 102
L. Ed. 2d 607 (1989). It must be structured so that if every state were to impose an
identical tax, multiple taxation would not result in order to satisfy the internal consistency
test. Id. External consistency requires that a state tax only that portion of the interstate
activity which reasonably reflects that state’s portion of the activity being taxed. Id. at
262, 109 S.Ct. at 589 (citing Container Corp. of America v. Franchise Tax Bd., 463 U.S.
159, 169-70, 103 S. Ct. 2933, 2942-43, 77 L. Ed. 2d 545 (1983)).

[¶85] The OTCs contend, in a variant of their nexus argument, that only the jurisdiction
in which the sale takes place can tax the entire transaction, while other jurisdictions can

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impose only use taxes having a credit mechanism for sales tax already paid. They rely
for this proposition on Oklahoma Tax Comm’n v. Jefferson Lines, Inc., 514 U.S. 175,
190, 115 S. Ct. 1331, 1341, 131 L. Ed. 2d 261 (1995), and United States v. Edmonson
County, Kentucky, 2001 U.S. Dist LEXIS 17660 (W.D. Ky. Oct. 1, 2001).

[¶86] The Wyoming sales tax is internally consistent as the Department has applied it.
The statute only taxes the sales price of hotels rooms located in Wyoming. If the other 49
states had the same statute, only Wyoming would impose its sales tax on rooms rented
here. The South Carolina Supreme Court stated the obvious in Travelscape, LLC: “If
every State imposed a similar tax on accommodations provided within its boundaries, no
multiple taxation would occur because the same accommodations cannot be furnished in
two different states at one time.” Travelscape, LLC, 705 S.E.2d at 38.

[¶87] The OTCs contend that application of the sales tax to the total consideration paid
violates the external consistency requirement because it reaches the reservation services
performed outside of Wyoming. The United States Supreme Court has recognized that
“an internally consistent, conventional sales tax has long been held to be externally
consistent as well.” Jefferson Lines, Inc., 514 U.S. at 188, 115 S.Ct. at 1340.

[¶88] The OTCs’ argument is based on the faulty premise that their services are
severable from the sale of lodging. We have already found that there is only one taxable
transaction entered into between an OTC and its customer. “[T]he entire gross receipts
derived from sales of services to be performed wholly in one State are taxable by that
State, notwithstanding that the contract for performance of the services has been entered
into across state lines with customers who reside outside the taxing State.” Id. (citing W.
Live Stock v. Bureau of Revenue, 303 U.S. 250, 58 S. Ct. 546, 82 L. Ed. 823 (1938)).

[¶89] For these reasons, we find the sales tax to be both internally and externally
consistent when applied to the OTCs, as did the SBOE.

C.    Discrimination Against Interstate Commerce

[¶90] The OTCs contend that application of the sales tax to the total price paid by the
transient guest discriminates against them because no Wyoming company has been
required to pay the same tax. The SBOE found that the OTCs failed to produce any
evidence that Wyoming entities were utilizing the merchant model, which would explain
why the Department has not collected on that basis. The record supports the SBOE’s
conclusion. We find no discrimination.

D.    Fair Relation to State Services

[¶91] The OTCs argue that the sales tax the Department seeks to impose does not bear a
fair relation to the services Wyoming provides to them. They contend that because their

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facilities and employees are located outside Wyoming, they do not benefit from police or
fire protection, a trained work force, or other services and assistance Wyoming provides
to those who live here.

[¶92] As noted above, the tax is assessed on the provision of lodging in Wyoming, and
the taxpayer is primarily responsible for paying it. Therefore, “[t]he fourth prong of the
Complete Auto test thus focuses on the wide range of benefits provided to the taxpayer,
not just the precise activity connected to the interstate activity at issue.” Goldberg, 488
U.S. at 267, 109 S.Ct. at 592.

[¶93] Wyoming provides the OTCs and their customers an orderly society in which
hotels can conduct business, where access to roads and airports allows customers to
utilize the hotels, and where police and fire departments protect guests and hotels. See
Vill. of Rosemont, supra, *14. The lodging tax also funds Wyoming travel and tourism
organizations. These organizations use those publically-paid dollars to attract tourists to
Wyoming, and those tourists in turn use the OTCs’ services to find lodgings. There is
therefore a fair relationship between the tax and the services that make it possible for the
OTCs to do business in this state.

[¶94] We find that application of Wyoming’s sales tax to the transactions in question
satisfies all four elements of the Complete Auto test. It therefore does not violate the
Dormant Commerce Clause.

III.   Equal Protection

[¶95] The OTCs argue that application of the sales tax to the gross amount they receive
from customers violates the Equal Protection Clause of the Fourteenth Amendment to the
United States Constitution, which provides that no state shall “deny to any person within
its jurisdiction the equal protection of the laws.” U.S. Const. amend. XIV, § 1. They
argue that travel agents, tour operators, and other travel intermediaries have booked hotel
reservations at discounted rates and marked them up for years. They contend that these
entities are merchants of record who collect payments from travelers, remit payments for
rooms, and retain compensation for facilitating the transactions. They are not being
treated the same as the OTCs, they claim, because they have not been required to collect
and remit sales tax.

[¶96] A party challenging a legislative classification which does not involve a suspect
class has the heavy burden of demonstrating the unconstitutionality of the statute beyond
a reasonable doubt. Gosar’s Unlimited Inc. v. Wyoming Public Service Comm’n, 2013
WY 90, ¶ 14, 305 P.3d 1152, 1156 (Wyo. 2013) (quoting Newport Int’l Univ., Inc. v.
State Dep’t of Ed., 2008 WY 72, ¶ 16, 186 P.3d 382, 387 (Wyo. 2008)); Krenning v.
Heart Mtn. Irr. Dist., 2009 WY 11, ¶ 33, 200 P.3d 774, 784 (Wyo. 2009). As the SBOE
found, there is no evidence in the record that any Wyoming entities are using the

                                              25
merchant model. There is therefore no evidence that Wyoming businesses operating in
the same manner as the OTCs are treated differently, and consequently no proof of an
equal protection violation. Gosar’s Unlimited, ¶ 15, 305 P.2d at 1156-57.

IV.    Due Process

[¶97] Despite having claimed that the tax statutes referred to above clearly do not apply
to their activities, the OTCs contend that if they are construed to do so, they are so vague
as to violate their rights to substantive due process under the Fourteenth Amendment to
the United States Constitution (“. . . nor shall any State deprive any person of life, liberty
or property, without due process of law”). It is true that laws must be reasonably explicit
to avoid trapping the innocent by not providing fair warning, and to prevent arbitrary and
discriminatory enforcement due to the lack of explicit standards. Grayned v. City of
Rockford, 408 U.S. 104, 108-09, 92 S. Ct. 2294, 2298-99, 33 L. Ed. 2d 222 (1972).

[¶98] A statute is impermissibly vague if people of common intelligence must
necessarily guess at its meaning and would differ as to its application. Newport Int’l.
Univ., Inc., ¶ 23, 186 P.3d at 388. To succeed on a claim of vagueness, “the complainant
must demonstrate that the law is impermissibly vague in all of its applications.” Vill. of
Hoffman Estates v. Flipside, Hoffman Estates, Inc., 455 U.S. 489, 497, 102 S. Ct. 1186,
1193, 71 L. Ed. 2d 362 (1982). “If legislative intent can be ascertained with reasonable
certainty, the statute will not be declared inoperative.” Haddenham v. City of Laramie,
648 P.2d 551, 555 (Wyo. 1982). “[L]ack of precision is not itself offensive to the
requirements of due process.” Browning v. State, 2001 WY 93, ¶ 12, 32 P.3d 1061, 1066
(Wyo. 2001).

[¶99] The degree of vagueness, importance of fair notice, and fair enforcement depend,
in part, on the nature of the activity in question. “[E]conomic regulation is subject to a
less strict vagueness test because its subject matter is often more narrow, and because
businesses, which face economic demands to plan behavior carefully, can be expected to
consult relevant legislation in advance of action.” Vill. of Hoffman Estates, 455 U.S. at
498, 102 S.Ct. at 1193 (footnotes omitted). The United State Supreme Court recognized
that a business enterprise has “the ability to clarify the meaning of the regulation by its
own inquiry, or by resort to an administrative process.” Id. The Department has
procedures in place to allow taxpayers to ascertain whether specific business transactions
are taxable. Wyo. Stat. Ann. § 39-11-102(a)(i)(D) (LexisNexis 2013).

[¶100] We have already found the language in the tax statutes in question to be
sufficiently clear to be understood without resorting to rules of statutory construction. To
the extent they confuse the OTCs, the Department can clarify them. We do not therefore
find them to be unconstitutionally vague.

                                               26
V.     Internet Tax Freedom Act

[¶101] Appellants also argue that application of Wyoming sales tax to the gross amount it
receives from customers violates the Internet Tax Freedom Act, Pu. L. 105-277, Div. C,
Title XI § 1101 (Oct. 21, 1998) (enacted as a statutory note to 47 U.S.C. § 151). A tax
discriminates against electronic commerce if it “imposes an obligation to collect or pay
the tax on a different person or entity than in the case of transactions involving similar
property, goods, services, or information accomplished through other means.” Id., §
1105(2)(A)(iii). In other words, states cannot tax those providing goods or services
through the internet differently than those who sell by other means.

[¶102] The OTCs argue that Wyoming has singled out on-line merchant model travel
facilitators, and that it does not apply the same tax to non-Internet based facilitators using
the merchant model. They contend that this results in a higher tax on their activity.

[¶103] The Department responds that the lodging tax is imposed and collected at the same
rate on any consumer transaction involving the procurement of a hotel room, regardless
of whether it is booked by the internet, telephone, fax machine, travel agent, or by simply
showing up at the hotel’s front desk. It has made the same demand on other travel
intermediaries as it did on the OTCs. The SBOE found that the OTCs failed to present
any evidence of differential treatment of internet providers. Appellants have referred us
to no evidence in the record which would contradict this finding. We therefore agree
with the SBOE that they have not shown a violation of the Internet Tax Freedom Act.

                                      CONCLUSION

[¶104] We find that the Wyoming Legislature intended to tax the entire amount an OTC
customer pays for the right to occupy a hotel room in Wyoming. We also conclude that
the sales/lodging tax statutes are constitutional when applied as the Department has
applied them, and that imposition of sales/lodging tax on the entire amount paid for the
right to occupy a room does not violate the Internet Tax Freedom Act. We therefore
affirm the SBOE decision upholding the Department’s application of the tax.

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