Expedia 2015 Annual Report Download - page 43

precondition to challenging the assessments, the Expedia companies and Orbitz paid $1.3 million under protest in
alleged taxes, penalties and interest. The parties have reached a settlement agreement, and on February 4, 2016,
the court entered an order dismissing all claims and counterclaims.
Denver, Colorado Litigation. On February 3, 2012, the City and County of Denver’s Hearing Officer issued
a final decision on tax assessments against the online travel companies. On March 7, 2012, the online travel
companies filed a timely notice of appeal and complaint in state court seeking relief under two separate
procedural bases of appeal. Expedia, Inc., et al. v. City and County of Denver, Colorado, et al., Case
No. 2012cv1446 (District Court for the City and County of Denver, Colorado). On March 12, 2013, the trial
court held that the online travel companies are liable for hotel occupancy taxes to the City and County of Denver,
but held that taxes may not be collected for periods prior to April 2007 due to the bar of the statute of limitations.
Both the City and County of Denver and the online travel companies appealed from the trial court’s decision. On
July 3, 2014, the Colorado Court of Appeals held that the online travel companies are not liable for hotel
occupancy taxes. On August 14, 2014, the City and County of Denver filed a petition for writ of certiorari
seeking discretionary review by the Colorado Supreme Court of the Court of Appeals’ decision. On September 8,
2015, the Colorado Supreme Court granted the petition. Oral argument has been scheduled for March 2, 2016.
Minnesota Cities Litigation. In July 2015, the Minnesota Commissioner of Revenue assessed certain
Expedia companies for local lodging taxes administered by the Commissioner that are imposed by the cities of
Minneapolis (including the Minneapolis Entertainment Tax), St. Paul and Rochester, Minnesota. On October 19,
2015, those companies filed an appeal from the orders of assessment with the Minnesota Tax Court.
Hawaii Tax Court Litigation (General Excise Tax). On January 31, 2011, the online travel companies
received final notices of assessment for general excise taxes for the tax years 2000 to 2011 on their services
relating to non-commissioned hotel room reservations. The 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 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. The case proceeded directly to the Hawaii Supreme Court for review and was not considered by the
Hawaii Court of Appeals. On March 17, 2015, the Hawaii Supreme Court issued a decision on the pending
appeal. The Court affirmed in part and reversed in part the Hawaii tax court’s decision. Specifically, the Court
ruled that while the online travel companies are obligated to remit past Hawaii general excise taxes with interest
on the amount paid to them for their services, along with penalties, the online travel companies are not liable for
general excise taxes, interest or penalties on the amount paid to the hotel for the room. The Department of
Taxation 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 and Orbitz 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. The
total amount that the Expedia companies paid in 2013 to appeal the tax court ruling was $171 million, comprised
of $78 million in taxes, $41 million in penalties and $52 million in interest. In light of the Hawaii Supreme Court
decision, the State agreed to refund the Expedia companies $132 million, which was subsequently paid to
Expedia in September 2015. Also in September 2015, Orbitz received a similar refund of $22 million from the
State of Hawaii. The amount paid, net of refunds, by the Expedia companies and Orbitz to the State of Hawaii in
satisfaction of past general excise taxes on their services is $44 million.
In addition, the Department of Taxation has issued final assessments for general excise taxes against the
Expedia companies, including Orbitz, for (i) non-commissioned hotel reservations for the tax year 2012 totaling
$26 million, which includes $6 million for Orbitz, (ii) non-commissioned travel agency services relating to rental
cars for the tax years 2000 through 2012 totaling $39 million, which includes $10 million for Orbitz and a
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