InterActiveCorp in Talks Over Tax Accounting

InterActiveCorp (IACI) is in discussions with several states and local governments about the tax accounting for discount hotel rooms sold through its Expedia (EXPE) and Hotels.com (ROOM) units.

At issue are blocks of tickets purchased by the online subsidiaries then retailed to customers. Expedia and Hotels.com currently calculate their tax rate off the wholesale cost of the blocks, but might in some instances be required to pay taxes on the amount paid by at retail.

The applicable tax provisions vary among jurisdictions, and many of them limit the obligation to collect occupancy taxes to businesses that are hotel "operators," a category InterActiveCorp doesn't think includes Expedia or Hotels.com, the company said in a release.

"While statutes in some jurisdictions do not specifically limit occupancy tax collection responsibilities to hotel operators, the companies believe they have sound additional arguments as to why they are not required to collect and remit occupancy taxes in those jurisdictions," InterActive said in a statement.

The issue came to light in a weekend article published by The New York Times that InterActiveCorp CEO Barry Diller said contained "numerous inaccuracies." The newspaper's back-of-the-envelope estimate was that the accounting was responsible for about one-quarter of Expedia and Hotels.com's operating profit in the first quarter, an estimate Diller contested.

"The article ... recklessly jumps to the conclusion that if such occupancy taxes were found to be owed on all of the companies' revenue, from all jurisdictions, the companies' liability could be substantial," he said in the release. "But while a limited number of jurisdictions have raised this issue (and the companies are engaged in ongoing dialogue with those jurisdictions), there is simply no basis for the supposition that the companies will face liability in all jurisdictions."

InterActiveCorp's shares were down 76 cents, or 2.2%, to $33.95 in Instinet premarket trading.