Travelzoo 2012 Annual Report Download - page 78

The implementation of the CARD Act and similar state and foreign laws may harm our Local Deals business.
Vouchers which are issued under our Local Deals and Getaway may be considered gift cards, gift certificates, stored value cards or
prepaid cards and therefore governed by, among other laws, the Credit Card Act of 2009 (the "CARD Act"), and state laws governing gift cards,
stored value cards and coupons. Other foreign jurisdictions have similar laws in place, in particular European jurisdictions where the European
E-Money Directive regulates the business of electronic money institutions. Many of these laws contain provisions governing the use of gift
cards, gift certificates, stored value cards or prepaid cards, including specific disclosure requirements and prohibitions or limitations on the use
of expiration dates and the imposition of certain fees. For example, if the vouchers are subject to the CARD Act and are not included in the
exemption for promotional programs, it is possible that the purchase value, which is the amount equal to the price paid for the voucher, or the
promotional value, which is the add-on value of the voucher in excess of the price paid, or both, may not expire before the later of (i) five years
after the date on which the voucher was issued; (ii) the voucher’s stated expiration date (if any); or (iii) a later date provided by applicable state
law. Purported class actions against other companies have been filed in federal and state court claiming that coupons similar to the vouchers are
subject to the CARD Act and various state laws governing gift cards and that the defendants have violated these laws by issuing the coupons
with expiration dates and other restrictions. In addition, investigations by certain state attorney general offices have been launched against other
companies with regards to similar issues. If similar claims are asserted against the Company in respect of the Local Deals and Getaway
vouchers
and are successful, we may become subject to fines and penalties and incur additional costs. In addition, if federal or state laws require that the
face value of our vouchers have a minimum expiration period beyond the period desired by a merchant for its promotional program, or no
expiration period, this may affect the willingness of merchants to issue vouchers in jurisdictions where these laws apply. For unredeemed
vouchers, similar laws in other jurisdictions require us or merchants to honor the face value of vouchers sold, after the redemption period. For
example, in Germany, certain consumer protection laws require us to refund consumers for almost four years after the purchase date for the
amount of the face value of purchased vouchers which remains unredeemed at the end of the redemption period. Therefore, we do not recognize
the unredeemed amounts as revenue until after we are not subject to these laws. There may be similar laws in other countries or provinces that
require similar practices. Such developments may materially and adversely affect the profitability or viability of our Local Deals and Getaway .
If we are required to materially increase the estimated liability recorded in our financial statements with respect to unredeemed Local Deals
and Getaway vouchers due to application of certain gift card laws, our net income could be materially and adversely affected.
In certain states and foreign jurisdictions, our Local Deals and Getaway vouchers may be considered a gift card. Some of these states and
foreign jurisdictions include gift cards under their unclaimed and abandoned property laws which require companies to remit to the government
the value of the unredeemed balance on the gift cards after a specified period of time (generally between one and five years) and impose certain
reporting and recordkeeping obligations. We do not remit any amounts relating to unredeemed vouchers we sell based on our assessment of
applicable laws. The analysis of the potential application of the unclaimed and abandoned property laws to our vouchers is complex, involving
an analysis of constitutional and statutory provisions and factual issues, including our relationship with subscribers and merchants and our role
as it relates to the issuance and delivery of a voucher. In the event that one or more states or foreign jurisdictions successfully challenges our
position on the application of its unclaimed and abandoned property laws to vouchers, or if the estimates that we use in projecting the likelihood
of vouchers being redeemed prove to be inaccurate, our liabilities with respect to unredeemed vouchers may be materially higher than the
amounts shown in our financial statements. If we are required to materially increase the estimated liability recorded in our financial statements
with respect to unredeemed gift cards, our net income could be materially and adversely affected. Moreover, a successful challenge to our
position could subject us to penalties or interest on unreported and unremitted sums, and any such penalties or interest would have a further
material adverse impact on our net income.
New tax treatment of companies engaged in Internet commerce may adversely affect the commercial use of our services and our financial
results.
Due to the global nature of the Internet, it is possible that various states or foreign countries might attempt to regulate our transmissions or
levy sales, income or other taxes relating to our activities. Tax authorities at the international, federal, state and local levels are currently
reviewing the appropriate treatment of companies engaged in Internet commerce. New or revised international, federal, state or local tax
regulations may subject us or our subscribers to additional sales, income and other taxes. We cannot predict the effect of current attempts to
impose sales, income or other taxes on commerce over the Internet. New or revised taxes and, in particular, sales taxes, VAT and similar taxes
would likely increase the cost of doing business online and decrease the attractiveness of advertising and selling goods and services over the
Internet. New taxes could also create significant increases in internal costs necessary to capture data, and collect and remit taxes. Any of these
events could have an adverse effect on our business and results of operations.
21