Expedia’s Tax Problems Go Global With VAT Challenges in Europe

Expedia Inc., and its various brands, have been defendants in 88 lawsuits filed by U.S. cities, counties and states since the City of Los Angeles filed the hotel tax lawsuit heard around the country in 2004 — now the online travel agency’s tax issues have surfaced in Europe, too.

Expedia noted for the the first time, in a quarterly filing with the Securities and Exchange Commission July 30, that it is “in various stages of inquiry or audit in multiple European Union jurisdictions, including in the United Kingdom, regarding the application of VAT to our European Union-related transactions.”

European countries tack on a Value-Added Tax as a consumption tax on goods and services, including hotel stays and transportation.

Expedia states it believes it complies with the VAT regulations although it may be subject to “pay to play rules,” meaning in several European Union countries Expedia would have to pay the allegedly underpaid VAT up-front in order to appeal tax authorities’ findings.

Although Expedia is first among the U.S.-based online travel agencies to cite VAT issues with European countries, you can be certain that some of its competitors are receiving similar notices.

Keeping Score

Back in the U.S., if you are keeping score, Expedia Inc. has been the defendant in 88 hotel occupancy or sales tax lawsuits and, of these, 38 have been dismissed. In some of the 38 dismissals, the plaintiffs still have the right to pursue administrative remedies or to file new litigation.

In 24 of the cases, Expedia and its co-defendants, including Priceline, Travelocity, Orbitz, and others, have been found not subject to hotel occupancy taxes or the plaintiffs were considered as not having the standing to sue.

Among the notable adverse decisions, although appeals are under way, Expedia expensed a total of $174 million in 2012 and 2013 “for amounts required or expected to be paid prior to appealing the tax court’s ruling” related to excise taxes in Hawaii. Expedia paid $171 million to the State of Hawaii in 2013 in taxes, penalties and interest but will get a $131 million refund.

In 2009, Expedia paid $48 million to the City of San Francisco prior to litigation in order to contest assessments. In 2014, Expedia had to kick in an additional $25.5 million and the case, City of San Diego, California Litigation, is pending before the California Supreme Court.

In the cases pertaining to hotel occupancy taxes, the online travel agencies argue that they are not hotel operators and just facilitate the transactions for hotels, and therefore they shouldn’t be subject to occupancy tax on their service fees/margin. The cities and states counter that they are getting a free ride and that the online travel agencies should be subject to occupancy taxes on the full retail rate that consumers pay them.

Despite 88 filed lawsuits in the U.S. — and now VAT issues in Europe — the hotel occupancy tax issue has mostly been manageable for Expedia and the other online travel agencies. Expedia had $94 million in reserves to cover the issue as of June 30, 2015.

There are currently 29 hotel tax lawsuits against Expedia still making their way through the courts at various stages.