Expedia 2007 Annual Report Download - page 44

Other Long-Term Liabilities
Various Legal and Tax Contingencies. We record liabilities to address potential exposures related to
business and tax positions we have taken that have been or could be challenged by taxing authorities. In
addition, we record liabilities associated with legal proceedings and lawsuits. These liabilities are recorded
when the likelihood of payment is probable and the amounts can be reasonably estimated. The determination
for required liabilities is based upon analysis of each individual tax issue, or legal proceeding, taking into
consideration the likelihood of adverse judgments and the range of possible loss. In addition, our analysis may
be based on discussions with outside legal counsel. The ultimate resolution of these potential tax exposures
and legal proceedings may be greater or less than the liabilities recorded.
Occupancy Tax. Some states and localities impose a transient occupancy or accommodation tax, or a
form of sales tax, on the use or occupancy of hotel accommodations. Generally, hotels charge taxes based on
the room rate paid to the hotel and remit these taxes to the various tax authorities. When a customer books a
room through one of our travel services, we collect a tax recovery charge from the customer which we pay to
the hotel. We do not collect or remit occupancy taxes, nor do we pay occupancy taxes to the hotel operator on
the portion of the customer payment we retain. Some jurisdictions have questioned our practice in this regard.
While the applicable tax provisions vary among the jurisdictions, we generally believe that we are not required
to collect and remit such occupancy taxes. We are engaged in discussions with tax authorities in various
jurisdictions to resolve this issue. Some tax authorities have brought lawsuits or have levied assessments
asserting that we are required to collect and remit occupancy tax. The ultimate resolution in all jurisdictions
cannot be determined at this time.
We have established a reserve for the potential settlement of issues related to hotel occupancy taxes for
prior and current periods, consistent with applicable accounting principles and in light of all current facts and
circumstances. A variety of factors could affect the amount of the liability (both past and future), which factors
include, but are not limited to, the number of, and amount of revenue represented by, jurisdictions that
ultimately assert a claim and prevail in assessing such additional tax or negotiate a settlement and changes in
relevant statutes.
We note that there are more than 7,000 taxing jurisdictions in the United States, and it is not feasible to
analyze the statutes, regulations and judicial and administrative rulings in every jurisdiction. Rather, we have
obtained the advice of state and local tax experts with respect to tax laws of certain states and local
jurisdictions that represent a large portion of our hotel revenue. Many of the fundamental statutes and
regulations that impose these taxes were established before the growth of the internet and e-commerce. It is
possible that some jurisdictions may introduce new legislation regarding the imposition of occupancy taxes on
businesses that arrange the booking of hotel accommodations. We continue to work with the relevant tax
authorities and legislators to clarify our obligations under new and emerging laws and regulations. We will
continue to monitor the issue closely and provide additional disclosure, as well as adjust the level of reserves,
as developments warrant. Additionally, certain of our businesses are involved in occupancy tax related
litigation which is discussed in Part I, Item 3, Legal Proceedings.
Stock-Based Compensation
We record stock-based compensation expense net of estimated forfeitures. In determining the estimated
forfeiture rates for stock-based awards, we periodically conduct an assessment of the actual number of equity
awards that have been forfeited to date as well as those expected to be forfeited in the future. We consider
many factors when estimating expected forfeitures, including the type of award, the employee class and
historical experience. The estimate of stock awards that will ultimately be forfeited requires significant
judgment and to the extent that actual results or updated estimates differ from our current estimates, such
amounts will be recorded as a cumulative adjustment in the period such estimates are revised. In 2005, we
recognized significant changes in estimates related to our forfeiture rate. See Note 9 — Stock-Based Awards
and Other Equity Instruments in the notes to the consolidated financial statements for further discussion.
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