Expedia 2014 Annual Report Download - page 44

past Hawaii general excise taxes with interest on both 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 general excise taxes 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 January 11, 2013 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 and the case proceeded directly to the Hawaii Supreme Court for review and was not considered by the
Hawaii Court of Appeals. On October 2, 2014, the Hawaii Supreme Court heard oral argument in the appeal. 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. The Department of
Taxation has dismissed without prejudice its common law claims for the recovery of general excise taxes.
As a pre-condition to appealing the tax court rulings, the Expedia companies were required to pay an
amount equal to taxes, penalties and interest. This requirement is commonly referred to as “pay-to-play.”
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; compromised of $78 million in taxes, $41 million in penalties and
$52 million in interest. The ultimate resolution of these contingencies may be greater or less than the liabilities
recorded and our estimates of possible penalties and additional assessments.
In addition, 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 also 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 years 2000 to 2012. These assessments include a duplicative assessment for Expedia and
Hotels.com totaling $9.3 million and thus are overstated. On January 7, 2013, 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. 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 for non-commissioned travel agency services relating to hotel reservations and car rental for tax year
2013. The online travel companies protested the assessments and requested additional support from the State for
the numbers included in the assessments. On December 22, 2014, the court stayed these assessments pending
review and decision by the Hawaii Supreme Court on prior tax assessments.
Non-Tax Litigation and Other Legal Proceedings
Consumer Class Action Litigation
Consumer Cases against Hotwire. On September 12, 2012, a putative class action suit was filed in federal
district court in Connecticut against a number of credit card companies and e-commerce companies, including
Hotwire. Miller, et al. v. 1-800-Flowers.com, Inc., et al., Case No. 3:12-CV-00396-VLB (U.S. District Court,
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