Expedia 2014 Annual Report Download - page 121

Pay-to-Play. Certain jurisdictions may assert that we are required to pay any assessed taxes prior to being
allowed to contest or litigate the applicability of the ordinances. This prepayment of contested taxes is referred to
as “pay-to-play.” Payment of these amounts is not an admission that we believe we are subject to such taxes and,
even when such payments are made, we continue to defend our position vigorously. If we prevail in the litigation,
for which a pay-to-play payment was made, the jurisdiction collecting the payment will be required to repay such
amounts and also may be required to pay interest.
Hawaii (General Excise Tax). On January 31, 2011, the online travel companies received final notices of
assessment from the Hawaii Department of Taxation for general excise taxes for the tax years 2000 to 2011 on
their services relating to non-commissioned hotel room reservations. The online travel companies appealed these
assessments to the Hawaii 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 because 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. On October 2, 2014, the Hawaii Supreme Court heard oral argument in the
appeal. The case is now before the Hawaii Supreme Court for decision.
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 Expedia 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. The online travel companies appealed the assessments
to the Hawaii tax court. On March 12, 2014, the online travel companies requested that the tax court stay
consideration of these assessments pending the decision by the Hawaii Supreme Court relating to the Department
of Taxation’s claimed right to taxes for non-commissioned travel agency services relating to hotel room
reservations. On April 28, 2014, the tax court granted the online travel companies’ request that the court stay
consideration of the Department of Taxation’s car rental assessments pending a decision by the Hawaii Supreme
Court.
On July 18, 2014, the Department of Taxation issued final general excise tax assessments totaling $28.5
million against the Expedia companies for non-commissioned travel agency services relating to hotel
reservations and car rental for the tax year 2013. The Expedia companies contested these assessments and
requested additional information from the Department of Taxation regarding the basis for the amounts assessed.
On December 22, 2014, the court stayed those assessments pending review and decision by the Hawaii Supreme
Court.
As a pre-condition to appealing the tax court rulings in the Hawaii excise tax proceedings, the Expedia
companies were required pay an amount equal to taxes, penalties and 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. The total amount that the Expedia companies paid in 2013 was $171
million, which is comprised of $78 million in taxes, $41 million in penalties and $52 million in interest.
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