Expedia 2015 Annual Report Download - page 59

Hawaii (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-to-play.” 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. As a result, we recognized a gain in legal reserves, occupancy
tax and other during 2015 related to this matter. 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
duplicative assessment for Expedia and Hotels.com totaling $9.3 million and thus are overstated, and (iii) non-
commissioned travel agency services relating to hotel reservations and car rental for the tax year 2013 totaling
$34 million, which includes $5 million for Orbitz. Similar assessments also have been issued against other online
travel companies. These assessments are currently under review in tax court.
The Department of Taxation has issued final assessments for general excise taxes against the Expedia
companies, including Orbitz, dated December 23, 2015 for the time period 2000 to 2014 for hotel and car rental
revenue for “agency model” transactions, and hotel and car rental revenue for “merchant model” transactions for
2014. These assessments total $12 million, including tax, interest and penalties.
San Francisco. During 2009, we were required to “pay-to-play” and 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 certain
Expedia companies. 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. 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. In addition, Orbitz in total has paid $4.6 million to the city of San Francisco in
prepayment of taxes to
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