Expedia 2013 Annual Report Download - page 121

tax court. On January 11, 2013, the Hawaii tax court ruled that the online travel companies are obligated to remit
past Hawaii general excise taxes with interest both on the amount paid to the online travel companies for their
services and the amount paid to the hotel for the room; thus subjecting the hotel’s charge for the room to double
taxation on account of tax amounts on the hotel room had already been paid for all of the years at issue. On
March 15, 2013, the Hawaii tax court issued penalties against the online travel companies for their failure to file
returns and pay general excise taxes. On August 12, 2013, the court further held that interest is due on such
penalties. During the pendency of the tax court proceeding, the online travel companies petitioned the Hawaii
Supreme Court for immediate review of the tax court’s ruling holding the companies liable for general excise tax.
The Hawaii Supreme Court denied the online travel companies’ petition on April 22, 2013. The tax court
proceeding subsequently concluded and on September 11, 2013, the online travel companies filed their notice of
appeal. On December 24, 2013, the Hawaii Supreme Court agreed to accept transfer and review of the case. The
case will now proceed to the Hawaii Supreme Court for review and will not be considered by the Hawaii Court
of Appeals. We strongly believe that the tax court ruling regarding the general excise tax is contrary to the plain
language of the ordinances at issue as well as prior Hawaiian Supreme Court decisions, previous positions taken
by the Hawaii Director of Taxation, and an opinion by the Attorney General of the State of Hawaii. We intend to
vigorously pursue our rights on appeal. During the course of the tax court proceeding, the Department of
Taxation dropped its common law claims for the recovery of general excise taxes that were asserted, thus only
the claims under the state general excise tax statute remain.
As a pre-condition to appealing the tax court rulings, the Expedia companies were required to pay-to-play an
amount equal to taxes, penalties and interest. Payment of these amounts, if any, is not an admission that we
believe we are subject to the taxes in question. To the extent our appeal is successful in reducing or eliminating
the assessed amounts, the state of Hawaii would be required to repay such amounts, plus interest. The total
amount that the Expedia companies paid in 2013 to appeal the tax court ruling was $171 million, which is
comprised of $78 million in taxes, $41 million in penalties and $52 million in interest. During 2012, we expensed
$110 million, and during 2013, we expensed an additional $64 million for amounts required or expected to be
paid prior to appealing the tax court’s ruling.
On May 20, 2013, the Department of Taxation issued final assessments for general excise taxes against the
Expedia companies for non-commissioned hotel reservations totaling $20.5 million for the tax year 2012. On
June 17, 2013, the online travel companies appealed these assessments to the Hawaii tax court. On December 13,
2013, the tax court held proceedings in abeyance pending review and decision by the Hawaii Supreme Court on
the prior assessments.
On December 9, 2013, the Department of Taxation issued final assessments for general excise taxes against
the online travel companies for non-commissioned travel agency services relating to rental cars totaling
$29.2 million for the tax years 2000 through 2012. These assessments include a duplicative assessment for
Expedia and Hotels.com totaling $9.3 million and thus are overstated. On January 7, 2014, the online travel
companies appealed the assessments to the Hawaii tax court.
It is reasonably possible that we will incur amounts in excess of the amounts expensed in 2012 and 2013,
which we estimate could be up to $38 million after consideration of the outstanding assessments. The ultimate
resolution of these contingencies may be greater or less than the liabilities recorded and our estimates of
additional assessments.
Matters Relating to Hotel Booking Practices. On July 31, 2012, the United Kingdom Office of Fair Trading
(“OFT”) issued a Statement of Objections alleging that Expedia, Booking.com B.V. and InterContinental Hotels
Group PLC (“IHG”) have infringed European Union and United Kingdom competition law in relation to the
online supply of hotel room accommodations. The Statement of Objections alleges that Expedia and
Booking.com entered into separate agreements with IHG that restricted each online travel company’s ability to
discount the price of IHG hotel rooms. The OFT limited its investigation to a small number of companies, but
stated that the investigation was likely to have wider implications for the industry within the United Kingdom.
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