Expedia 2014 Annual Report Download - page 60

obligated to remit 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. The online travel companies have appealed the tax court ruling. The Hawaii Supreme Court
accepted review and heard oral argument on October 2, 2014.
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 tax court stayed consideration of these assessments pending review and decision by
the Hawaii Supreme Court on prior assessments.
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 paid by the Expedia companies in 2013 was $171
million, which was comprised 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 pay-to-play payments made and our
estimates of additional assessments mentioned above.
San Francisco Litigation. During 2009, we paid $48 million in advance of litigation relating to 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 against Expedia, Hotels.com and Hotwire. The
additional assessments, including the prepayment of such assessments, were contested by the Expedia companies
on the basis that the court has already ruled that taxes are not due from the online travel companies and that
binding precedent by the California Court of Appeals precludes the city’s claim for taxes. Although the city
initially agreed, subject to documentation, that the additional assessments need not be paid and could be placed
under a bond, it subsequently sought to collect the additional assessment against the Expedia companies. On
May 14, 2014, the court heard oral argument on the Expedia companies’ contest of the prepayment requirement
for the additional assessments and held that the Expedia companies were required to prepay in order to litigate
the legality of the assessments. On May 26, 2014, the Expedia companies paid $25.5 million under protest in
order to contest the additional assessments. The additional assessments were expensed during the second quarter
of 2014. On August 6, 2014, the California Court of Appeals stayed this case pending review and decision by the
California Supreme Court of the City of San Diego, California Litigation.
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