InterActiveCorp Shares Slip on Tax Question

Shares in InterActiveCorp fell Monday, as questions surfaced about its accounting for local taxes on hotel rooms bought at travel Web sites Hotels.com and Expedia.

Shares of the e-commerce company, which is run by media mogul Barry Diller, ended down slightly after falling as much as 4.5%, touching their lowest level since mid-May.

“This is not an issue that derails the overall business model,” said Matthew Harrigan, analyst at Janco Partners Inc., who rates the stock a “buy.” “I think this is something that will affect the stock until you get a resolution.”

A newspaper report over the weekend said two of InterActiveCorp’s main growth engines, Hotels.com and Expedia, might be paying less in hotel occupancy taxes than government authorities thought was owed. As a result, the paper said, the company could be inflating profits.

Diller, InterActiveCorp’s chairman and chief executive, said in a statement Monday that though a “limited number” of the company’s tax jurisdictions have raised the issue, “there is simply no basis for the supposition that the companies will face liability in all jurisdictions.”

He said InterActiveCorp was in discussions with tax authorities in some places to resolve the issue. Diller said that the matter was disclosed in public filings, which show that the company has set aside reserves of less than $10 million.

Tax experts said broad gaps existed in enforcing the payment of state taxes for products and services sold online, including questions of which party is responsible for collecting the tax and whether the company involved has a business presence in the state requiring it.

“It’s one of those areas where the tax laws have to catch up with the way people are doing business,” said Gregory Matson, a tax counselor at the Tax Executives Institute. “I suspect that this is something every state will look at.”

One tax expert said that in the case of hotel bookings, whether involving online or bricks-and-mortar entities, “it’s the hotel’s obligation to pay the taxes, not the distributor.”

The New York Times report said that New York and Florida were two key tourism states where InterActiveCorp could encounter tax problems. The newspaper spelled out what extra profit InterActiveCorp may have gained by calculating taxes on the wholesale price of hotel room bookings instead of the retail price offered consumers.

Tax authorities in both states would not comment on the status of any particular company, but said they were reviewing sales tax issues for the industry.

Shares of InterActiveCorp ended down 5 cents at $34.66 after hitting a low for the day of $33.15 on Nasdaq.