Priceline 2011 Annual Report Download - page 96

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gross profit was earned in over a thousand taxing jurisdictions that the Company believes have aggregate tax rates (which may
include hotel occupancy taxes, state and local taxes, among other taxes) associated with a typical transaction between a
consumer and a hotel that generally range from approximately 6% to approximately 18%, depending on the jurisdiction. In
many of the judicial and other proceedings initiated to date, municipalities seek not only historical taxes that are claimed to be
owed on the Company’s gross profit, but also, among other things, interest, penalties, punitive damages and/or attorney fees
and costs. Therefore, any liability associated with hotel occupancy tax matters is not constrained to the Company’s liability for
tax owed on its historical gross profit, but may also include, among other things, penalties, interest and attorneys’ fees.
To date, the majority of the taxing jurisdictions in which the Company facilitates hotel reservations have not asserted
that taxes are due and payable on the Company’s U.S. "merchant" hotel business. With respect to municipalities that have not
initiated proceedings to date, it is possible that they will do so in the future or that they will seek to amend their tax statutes and
seek to collect taxes from the Company only on a prospective basis.
Reserve for Hotel Occupancy and Other Taxes
As a result of this litigation and other attempts by jurisdictions to levy similar taxes, the Company has established an
accrual for the potential resolution of issues related to hotel occupancy and other taxes in the amount of approximately $33
million as of December 31, 2011 compared to approximately $26 million as of December 31, 2010 (which includes, among
other things, amounts related to the litigation in San Antonio). The accrual is based on the Company’s estimate of the ultimate
cost of resolving these issues. The actual cost may be less or greater, potentially significantly, than the liabilities recorded. An
estimate for a possible loss or range of loss in excess of the amount accrued cannot be reasonably made.
Developments in the Year Ended December 31, 2011
In the year ended December 31, 2011 and to date, six of the approximately fifty currently pending lawsuits and seven
of the total number of currently pending administrative proceedings noted above were commenced. District of Columbia v.
Priceline.com, Inc. (Superior Court for the District of Columbia) was filed on March 22, 2011; McAllister v. Hotels.com, L.P.,
et al. (Circuit Court of Saline County, Arkansas), a putative class action, was filed on February 22, 2011; County of Volusia, et
al. v. Priceline.com, Inc., et al. (Circuit Court of Volusia County, Florida) was filed on April 20, 2011; Town of Breckenridge,
Colorado v. Colorado Travel Company, LLC, et al., (Summit County District Court), a putative class action, was filed on July
25, 2011; County of Nassau v. Expedia, Inc. et al. (Supreme Court of the State of New York, County of Nassau) was filed on
September 26, 2011. This case previously had been dismissed from federal court and was refiled as a state court action. State
of Mississippi ex rel. Attorney General Jim Hood v. Priceline.com, Inc., et al. (Chancery Court for Hinds County, Mississippi)
was filed in December 2011. In addition, County of Kent, Michigan v. Hotels.com, L.P., et al. (Circuit Court for Kent County)
was filed in November 2011; the Priceline defendants were voluntarily dismissed in December 2011.
In addition, during the year ended December 31, 2011 and to date, appellate rulings and rulings granting dispositive
motions brought by us (or another co-defendant), e.g. motions to dismiss or for summary judgment, were issued. For example,
on June 28, 2011, in St. Louis County, et al. v. Prestige Travel, Inc., et al. (Circuit Court of St. Louis County, Missouri; filed
July 2009), the Supreme Court of Missouri affirmed the lower court's dismissal of all claims against the online travel
companies. On October 25, 2011, in City of Houston v. Hotels.com, L.P. (Harris County, Tex. Dist. Ct., filed on March 5,
2007) (Tex. App., appeal filed April 14, 2010), the Texas 14th Court of Appeals affirmed the lower court's grant of summary
judgment in favor of the defendants on all claims, holding that the statutes at issue in that case did not apply to defendants'
hotel reservation facilitation services. In January 2012, Plaintiffs filed a petition for review before the Texas Supreme Court.
In State of Oklahoma v. Priceline.com, et al. (District Court of Oklahoma County, Oklahoma, filed November 2010),
defendants' motion to dismiss was granted on March 11, 2011 and plaintiffs did not appeal. Defendants' motion for summary
judgment was granted on March 24, 2011 in City of Birmingham, Alabama, et al. v. Orbitz, Inc. et al., (Circuit Court of
Jefferson County, filed December 2009); Plaintiffs have appealed that ruling to the Alabama Supreme Court. On April 29,
2011, the Kentucky Court of Appeals affirmed the lower court's dismissal of all claims against the online travel companies in
City of Bowling Green, Kentucky v. Hotels.com, L.P., et al. (filed in Warren Circuit Court in March 2009; appeal filed April
2010; motion for discretionary review filed with Kentucky Supreme Court in May 2011). In February 2012, the Kentucky
Supreme Court denied the plaintiff's motion for discretionary review of the Court of Appeals' decision. In City of San Diego,
California v. Hotels.com, L.P., et al., JCCP 4472 (Los Angeles Superior Court, filed February 9, 2006), on September 6, 2011,
the court granted the online travel companies' petition to (i) vacate the hearing officer's prior ruling that the online travel
company defendants are liable for transient occupancy tax pursuant to San Diego's ordinance, (ii) issue a new ruling that the
online travel company defendants are not liable for such tax, and (iii) to set aside the City of San Diego's assessments. With
respect to its remaining claims, the City of San Diego has indicated it will stipulate to a consent judgment in favor of the online
travel companies. The City has indicated it plans to appeal. In City of Santa Monica v. Expedia, Inc. et al., JCCP 4472 (Los