Expedia 2013 Annual Report Download - page 60

January 21, 2014, the city notified the Expedia companies that it will proceed against them in an
administrative process and seek to recover an additional assessment amount of $24 million for the
fourth quarter of 2007 to fourth quarter of 2011 time period despite the trial court judgment that online
travel companies do not owe hotel occupancy taxes.
•Leon County, Florida Litigation. On September 10, 2013, the Florida Supreme Court informed the
parties that it will review the decision of the court of appeals, which affirmed the trial court’s decision
that online travel companies are not liable for hotel occupancy taxes. Oral argument before the Florida
Supreme Court is scheduled for April 30, 2014.
•McAllister Arkansas Citizen-Taxpayer Litigation. Plaintiffs voluntarily dismissed their appeal of the
trial court decision in favor of the online travel companies, and on January 9, 2014, the Arkansas
Supreme Court dismissed the appeal, thereby concluding the case.
•New York City Litigation. On November 21, 2013, the New York Court of Appeals reversed the
intermediate appellate court’s decision and held that the Expedia companies and other online travel
companies are not entitled to a refund for taxes paid during the time period before the state enabling
statute allowed the city to collect occupancy taxes from the online travel companies.
•State of Oregon Litigation. The online travel companies filed a lawsuit against the Department of
Revenue challenging the application of the state’s new hotel occupancy tax law to online travel
companies.
•Hawaii Tax Court Litigation (Transient Accommodations Tax). On August 19, 2013, the Director of
Taxation filed a notice of appeal of the tax court’s order that online travel companies are not liable for
hotel occupancy taxes. The appeal is before the Hawaii Supreme Court for consideration.
•State of North Carolina Litigation. The parties entered a settlement. On December 3, 2013, the lawsuit
was dismissed.
For additional information on these and other legal proceedings, see Part I, Item 3, Legal Proceedings.
We have established a reserve for the potential settlement of issues related to hotel occupancy tax litigation,
consistent with applicable accounting principles and in light of all current facts and circumstances, in the amount
of $46 million as of December 31, 2013, which includes amounts expected to be paid in connection with the
developments described above, and $35 million as of December 31, 2012.
Certain jurisdictions may require us to pay tax assessments, including occupancy tax assessments, prior to
contesting any such assessments. This requirement is commonly referred to as “pay-to-play.” Payment of these
amounts is not an admission by the taxpayer that it believes it is subject to such taxes. During 2009, we expensed
$48 million related to monies paid in advance of litigation in occupancy tax proceedings with the city of San
Francisco. The city of San Francisco subsequently issued additional assessments of tax, penalties and interest for
the time period from the fourth quarter of 2007 through the fourth quarter of 2011 against the online travel
companies, including $24 million against Expedia, Hotels.com and Hotwire. The additional assessments,
including the prepayment of such assessments, have been contested by the online travel companies. The city
previously agreed, subject to documentation, that the second assessment need not be paid and could be placed
under a bond. The city now has stated that it intends to proceed with an administrative process outside of
litigation and will seek to collect the $24 million assessment against the Expedia companies. The Expedia
companies will seek injunctive and other relief to block the continuation of the administrative process for these
assessments that are already the subject of a court proceeding. In 2010, the Expedia companies made a pay to
play payment to the city of Santa Monica. The online travel companies prevailed in that case and the payment to
Santa Monica by the Expedia companies totaling $3 million was returned by the city. Hotels.com is currently
under audit by the State of Texas, which imposes a pay-to-play requirement to challenge an adverse audit result
in court.
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