Are You at Risk of Unexpected Penalties, Criminal Charges, or Loss of Business?

This article was originally posted on March 19, 2014. 

California, Florida, Hawaii, Iowa, and Washington require tour operators and agents to register, pay annual fees, and provide different types of financial security when sales are offered to residents of those states regardless of where the operator is located (including non-U.S. based companies). These Seller of Travel laws create a regulatory scheme mandating a number of operational processes in how you run your company including required disclosures, advertising permissions and limitations, and accounting practices. For example, in many situations your client’s payments cannot go directly into your operating account.

Consider the following case out of California where owners of several travel companies were sentenced to thirteen years of prison for criminal embezzlement for failing to comply with California’s regulations:

Norman Ronnie Hansen and Joseph Maloof owned two travel companies in California and one in Louisiana. During the course of their operations, Hanson and Maloof used funds received from clients to pay unrelated financial obligations such as the companies’ outstanding debts to other creditors, to pay themselves, and to purchase personal items and travel. They also delayed purchasing travel services on behalf of current clients and used payment they received from later clients for different travel services creating a cascading flow of client money that they could not catch up with. Under California law, travel companies have “a fiduciary responsibility with respect to all sums received for transportation or travel services” and use of a client’s for expenses unrelated to the client’s travel and for other company or personal outstanding debts constitutes embezzlement.

So what is the risk of failing to register as a Seller of Travel?

Two significant factors create risk:

  1. How you treat your clients and their money. Complaints from dissatisfied or ripped-off clients are the primary source that the regulatory agencies rely on for enforcement. If you are unable to deliver the travel purchased or provide a refund, your client has recourse through a complaint to the state agency triggering an investigation into your operations.
  2. The more visible you are the higher the risk. The California Attorney General, for example, has a reputation for proactively pursuing un-registered operators including those located outside of California. With most operators advertising and selling via the web, it is not too difficult to find un-registered companies. If you are located in a state that requires Sellers of Travel to register than your risk is even more elevated because you are likely on the regulatory agency’s radar or will be at some point.

These regulations apply based on where your client resides, and not where your company is located. That bears repeating: Seller of Travel laws apply to your company regardless of where it is located (including non-U.S. based companies); instead the laws apply to you based on where your potential and actual clients reside.

The information included here relates solely to “Seller of Travel” laws and regulations which are distinct from general business laws governing the conduct of business in all states. Every state requires companies to register with them when they do business in that state and a few states require a license specific to travel companies in order to conduct business, including selling to residents of the state.

What is the cost of complying with Seller of Travel laws?

California

  • Initial and annual registration fee $100
  • If you did not register at least 10 days before advertising your company’s first qualifying travel services then you must pay an additional late registration fee of $5 per day, with a minimum $100 and maximum $500 fee
  • The cost of opening and maintaining a seller of travel trust account with a federally insured financial institution or purchasing a qualifying surety bond
  • If your company is located in or has an office in California, your must also register and comply with the California Travel Consumer Restitution Corporation and pay an initial fee of $275 per location in California and annual/periodic assessments going forward (which was $0.00 (zero) for the 2012-13 and 2013-14 fiscal years)
  • http://oag.ca.gov/travel

Florida

  • Initial and annual fee of $300
  • You must also purchase and maintain a $25,000 (minimum) performance bond in favor of the state of Florida issued by a surety company authorized to do business in Florida and provide proof of the bond to the state. You can request a waiver of the bond after 5 years in good standing as a registered seller of travel.
  • Additional regulations and requirements that may increase compliance costs apply if you sell vouchers or certificates

Hawaii

  • Initial registration fee of $140.00 (if you register in an odd-numbered year, e.g. 2015) or $95.00 (if you register in an even-numbered year, e.g. 2014)
  • Annual renewal fee is due before the end of each odd-numbered year in the amount of $90.00
  • Out-of-State companies must also obtain a Certificate of Authority to do Business in Hawaii and the initial and annual fees range from $5.00 to $50.00 per year depending on the type of entity
  • The cost of opening and maintaining a seller of travel trust account with a financial institution located in Hawaii
  • http://hawaii.gov/dcca/pvl/programs/travel

Iowa

  • Initial and annual fee of $15.00
  • Cost of surety or cash performance bond in the amount of $10,000 issued by a surety company authorized to business in Iowa, maintenance of a $1,000,000 professional liability and errors and omissions insurance policy, or other authorized financial security.
  • https://sos.iowa.gov/business/MiscellaneousFilingInfo.html#

Washington

  • Initial and annual fee of $202.00
  • The cost of opening and maintaining a seller of travel trust account with a financial institution located in Washington or purchasing a qualifying surety bond. Unlike in other states, you can avoid this requirement if you file an attestation that your company does not hold client money in its accounts for more than five days. (This may change as the state regulatory agency is considering changes to the Washington law including eliminating this ‘opt-out’ option.)
  • http://www.dol.wa.gov/business/travel/

Additional associated costs may include legal fees for advice on how to come into and maintain compliance across each state where you advertise, and costs related to training your staff in compliance.

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