Expedia 2011 Annual Report Download - page 54

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 statutes and regulations that impose hotel
occupancy taxes were established before the emergence of the internet and e-commerce. Certain jurisdictions,
such as the states of New York, North Carolina and Minnesota, the city of New York and the District of
Columbia, have enacted, and others may enact, 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. Recent occupancy tax developments are also discussed
below under the caption “Occupancy Taxes.”
Stock-Based Compensation
Our primary form of employee stock-based compensation is stock option awards. We measure the value of
stock option awards on the date of grant at fair value using the Black-Scholes option valuation model. We
amortize the fair value, net of estimated forfeitures, over the remaining term on a straight-line basis. The Black-
Scholes model requires various highly judgmental assumptions including volatility and expected option term. If
any of the assumptions used in the Black-Scholes model change significantly, stock-based compensation expense
may differ materially in the future from that recorded in the current period.
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.
New Accounting Pronouncements
For a discussion of new accounting pronouncements, see Note 2 — Significant Accounting Policies in the
notes to consolidated financial statements.
Occupancy Taxes
We are currently involved in 48 lawsuits brought by or against states, cities and counties over issues
involving the payment of hotel occupancy taxes. We continue to defend these lawsuits vigorously. With respect
to the principal claims in these matters, we believe that the ordinances at issue do not apply to the services we
provide, namely the facilitation of hotel reservations, and, therefore, that we do not owe the taxes that are
claimed to be owed. We believe that the ordinances at issue generally impose occupancy and other taxes on
entities that own, operate or control hotels (or similar businesses) or furnish or provide hotel rooms or similar
accommodations.
Recent developments include:
• On November 29, 2011, the Supreme Court of New York, Appellate Division, reversed the trial court’s
decision and ruled in favor of the online travel companies, holding that New York City exceeded its
taxing authority when it amended its local ordinance in 2009. The New York State Legislature
subsequently enacted legislation enabling the city to impose occupancy taxes on online travel company
services;
• New lawsuits have been brought by Kent County, Michigan and the state of Mississippi.
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