June 22, VIA

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1 MICHAEL SIMONS /fax: June 22, 2015 VIA Thomas Lannom Revenue Division Director Terri Williams Tax Revenue Manager, Deputy Director Revenue Division Bureau of Revenue & Financial Services City of Portland, Oregon 111 Southwest Columbia Street, Suite 600 Portland, Oregon Dear Sirs: Re: HomeAway, Inc. This letter responds to recent communications from the City of Portland (the City ) to HomeAway.com, Inc. and VRBO.com, including Mr. Bouffard s May 19, 2015, letter; Ms. Williams June 9, 2015, letter; Mr. Bouffard s June 10, 2015, s to Ms. Dickey; and Mr. Lannom s June 17, 2015, to Ms. Dickey. Please note that VRBO.com is not a separate entity, rather it is a website that is operated by HomeAway.com, Inc. In this letter, unless otherwise specified, HomeAway means HomeAway.com, Inc. and VRBO.com. Akin Gump Strauss Hauer & Feld LLP represents HomeAway in this matter. Please direct future correspondence on these issues to me. We have carefully reviewed the May 19, 2015, Notice of Violation letter sent to HomeAway, the Notice of Violation to VRBO, and subsequent correspondence from the City and Portland City Ordinance No (the Ordinance ). Based on this review, it is clear that there is a fundamental misunderstanding of the way HomeAway s business operates. It is also clear that the fines levied against HomeAway and VRBO are not authorized by the Ordinance, and that the procedures that the City has outlined it its letters are inconsistent with the Ordinance. 600 Congress Avenue, Suite 1350 Austin, Texas fax: akingump.com

2 Page 2 1. HomeAway s Business HomeAway is based in Austin, Texas. Founded in 2005, HomeAway, Inc., through HomeAway.com, Inc. and its other subsidiaries, operates the largest national and international online marketplace in the vacation rental industry. From 2006 to 2014, the number of listings on HomeAway s network of websites grew from five websites with 60,000 listings to multiple sites that advertise listings in 190 countries around the world. The number of listings on HomeAway websites now surpasses 1,000,000 listings worldwide. HomeAway allows an owner or lessee of residential property, or that owner or lessee s designated and legal agent (collectively Listing Owner ), to advertise that property for rental for any length of time on one or all of HomeAway s network of websites. Travelers seeking to rent residential properties can access HomeAway s websites to search for and find available properties that meet their desired criteria, including location, size, duration of stay and price. Travelers then book rentals directly with and pay the Listing Owner on a nightly, weekly, monthly or longer basis. Travelers visit HomeAway s marketplace at no charge. When a Traveler is interested in renting a property, the Traveler contacts the Listing Owner directly by phone or through form-based communication tools on HomeAway s websites. The Traveler makes a rental agreement directly with the Listing Owner. Listing Owners control the transaction and choose to whom they will rent, and how and when they wish to be paid. While the majority of Listing Owners on HomeAway websites require full payment in advance of occupancy, payment policies are controlled exclusively by the Listing Owner. HomeAway s choice to allow Travelers to use HomeAway s websites at no charge is a competitive advantage, although Travelers may purchase services from HomeAway, such as travel or property damage protection or the Home Away Carefree Rental Guarantee. HomeAway derives its primary revenue from Listing Owners who advertise on its websites. There are two means by which Listing Owners compensate HomeAway. First, Listing Owners can pay for the listings by purchasing subscriptions, which are typically annual, to provide detailed descriptions of their properties on HomeAway s websites and reach a broad audience of Travelers seeking vacation rentals. This is the most common form of HomeAway s compensation. Alternatively, Listing Owners may choose to pay for their listings via a HomeAway product called Pay-Per-Booking launched in September Under this compensation mechanism, the Listing Owner agrees to pay a small percentage of the value of a booking from a Traveler who finds the property via a HomeAway website. Under either approach, however, Listing Owners correspond directly with Travelers to arrange and contract for rentals, and collect all rental fees. Listing owners use either their own forms and procedures, or may choose to use online forms and tracking tools provided by HomeAway to manage communications and invoices to be sent to Travelers, and may use third party payment services to process rental payments and security deposit refunds. While the Listing Owner may report a booking and pay for the listing based on that booking value under the

3 Page 3 pay-per-booking model, in neither model is HomeAway a party to the rental transaction. Nor does HomeAway screen guests or collect or remit rental payments to anyone or receive any portion of rental payments from a Traveler. 2. The Fundamental Mismatch While the City is attempting to define HomeAway as a Booking Agent, the reality is that because of its business model, HomeAway establishes no agency relationship with the Listing Owner or the Traveler. Listing Owners can and do advertise on many different online and offline marketplaces, and HomeAway has no knowledge if bookings arise from those other services.. Because (a) taxes are not due under the Ordinance unless a nonexempt property is rented for less than thirty days and (b) HomeAway has no knowledge of whether a property has actually been rented, the length of the rental or the amount paid for the rental, and (c) any booking and payment for the booking occurs directly between the Traveler and the Listing Owner, HomeAway cannot calculate or collect taxes on behalf of the City. The only people who have that information are the Listing Owners, and HomeAway has no way to collect or verify that information. It is simply impossible for HomeAway to do what the City wants it to do. HomeAway cannot give the City money that it does not have, and cannot police transactions that it does not control. HomeAway s services are very similar to a classified advertisement where a homeowner advertises a good for sale and then closes a transaction without the knowledge of the newspaper. The City cannot be seriously contending that it will force newspapers to collect taxes for homes that are rented through classifieds advertisements. Similarly, the city would never try to force VISA or MasterCard to collect taxes on transactions completed with those credit card services. Rather, it is the obligation of the person who actually completes the transaction and collects the money for the rental of a nonexempt property, for less than thirty days, to remit any taxes owed. The City efforts to force HomeAway to change its entire business model so that it can collect taxes for the City is improper. If the City attempts to force such a change, HomeAway will vigorously defend itself and its business model. Attempting to force such a change would violate the interstate commerce clause of the U.S. Constitution, the Communications Decency Act and other federal statutes. In addition to the fundamental issues with the City s efforts to force HomeAway to do something it simply cannot do, the City has failed to follow the Ordinance in assessing fines against HomeAway, and those fines should be rescinded immediately for failure to comply with the Ordinance.

4 Page 4 3. The Ordinance Does Not Require HomeAway to Pay the Fines to Contest Those Fines The Ordinance does not require HomeAway to pay the fines in order to contest the fines that have been imposed by the City. The City s claim that HomeAway must pay the fines before it can challenge the fines is based on PCC E. But by its terms that section only applies to deficiency determinations made against operators. 1 Operator means the person who is proprietor of a hotel in any capacity. PCC M. HomeAway is not the proprietor of any hotel in the City and clearly does not fall within the definition of Operator under the Ordinance. The City did not make the required determination against an Operator who is required to pay the fine prior to seeking a redetermination. As a result, the Ordinance does not require HomeAway to pay the fines prior to challenging the propriety of the fines. Further, Oregon Courts have ruled that prepayment of taxes and exhaustion of administrative remedies is not required to challenge assessments made by the City. See Expedia, Inc. v. City of Portland, Case No , In the Circuit Court of the State of Oregon for the County of Multnomah (June 15, 2012, Order denying the City of Portland s motion to dismiss on the basis that the online travel companies should be required to exhaust their administrative remedies including the payment of any taxes allegedly owed before proceeding in a lawsuit). To the extent that the City refuses to allow HomeAway access to the administrative appeals process or to otherwise hear the complaints made by HomeAway regarding the unconstitutional and discriminatory fines improperly levied under the Ordinance, HomeAway may have a cause of 1 Any person against whom a determination is made under Section may petition for a redetermination PCC A. The Bureau shall give to the operator or transient (in the case of a refund request) a written notice of its determination. PCC A2 Any deficiency is due and payable 10 days after the Bureau serves its written notice. The operator or transient (in the case of a refund request) may petition for a redetermination if the petition is filed within 10 days of service as provided in Section PCC A3. No petition for redetermination... will not be accepted... unless the operator has first complied with the payment provisions hereof and has paid in full the amount determined to be due PCC E..

5 Page 5 action against the city for damages and such other remedies as may be appropriate. See PCC HomeAway requests that the City rescind these fines in their entirety either through the redetermination process, including an oral hearing, or through other processes permitted by the Portland City Code or other applicable laws. 4. The Fines Imposed by the City are Not Authorized by the Ordinance The fines imposed on HomeAway on May 19, 2015, are listed below. Identical, duplicative fines were imposed on VRBO.com, which is not an independent entity but is a website published using the same technology and database as HomeAway.com. PCC Date of Assessment Civil Penalty Assessed Frequency Civil Penalty Assessment A 5/19/2015 $500 1 $ B 5/19/2015 $ $165, D 5/19/2015 $ $161,000 Total Penalty Against HomeAway.com Total Penalty Against VRBO.com $326,500 $343,000 2 Total Penalty $669,500 a. The fines under A are not authorized by the Ordinance because HomeAway is not an Operator under the Ordinance. The Ordinance requires that Every person engaging or about to engage in business as an operator of a hotel in this City shall register with the Bureau on a form provided by the Bureau. PCC Operator means the person who is proprietor of the hotel in any capacity. PCC 2 See June 10, 2015, from Stephen Bouffard to Courtney Dickey.

6 Page M. HomeAway is neither an Operator nor an agent of the Operator and thus is not required to register under PCC A. This fine should be rescinded. b. The fines under B are not authorized by the Ordinance. The Fines under B are not authorized by the Ordinance because (1) the fines were imposed before the earliest date that fines were permitted under the statute; (2) many of the properties listed on HomeAway websites are exempt from taxation; (3) the City improperly fined HomeAway for properties that were listed on a website for rent rather than properties that were actually rented; and (4) the City s duplicative fines on both HomeAway and VRBO are improper because both websites are published from the same database of Listing Owners. i. The timing of fines was improper The Ordinance went into effect on February 20, Taxes are not due until the 15th of the month after the end of the quarter (see PCC ). First quarter taxes were not due until April 15, Fines for failure to pay taxes cannot be levied until 60 days after the taxes are due, in this case, June 15, 2015, at the very earliest (see PCC A). Here, there has been no determination of whether any taxes are actually due on any property that has actually been rented and the fines were assessed on May 19, 2015, well before the earliest date that any fines for failure to collect taxes could have been assessed. As such, these fines are invalid for failure to comply with the requirements of the Ordinance. ii. The City is attempting to tax exempt properties PCC B includes an exemption from taxation for Any person who rents a private home, vacation cabin, or like facility from any owner who rents such facilities incidentally to his own use thereof, except Bed and Breakfast Homes and Inns. Many property owners that advertise on HomeAway websites are renting private homes, vacation cabins and the like and they are using the property and renting it when they are not using it. Of the current listing for Portland there are 129 homes, 18 cottages, 13 townhomes, 11 bungalows, 4 villas, 2 cabins, and 1 estate. That is a total of at least 178 exempt properties. More than half of the properties that the City is seeking to tax may be exempt from taxation. Additionally, the Ordinance does not apply to homes that are rented for more than 30 days. HomeAway has no way to know for sure if a property has been rented, or the length of the rental. Some of the properties that are advertised on HomeAway websites are likely rented for more than 30 days and as a result are exempt from taxes under the Ordinance.

7 Page 7 iii. The City is attempting to collect taxes on properties before the properties have been rented, and before taxes are due. PCC only requires taxes to be collected if the person with tax collection obligations actually receives or facilitates payment. ( An Operator or Booking Agent that directly or indirectly accepts, receives or facilitates payment, is required to collect, report and remit transient lodging taxes to the City of Portland in accordance with this Chapter. PCC B). Under this section there cannot be a violation until the property is actually rented and the owner receives payment for the rental. The City simply fined HomeAway for every property that was advertised regardless of whether it was successfully rented or not. PCC B does not authorize fines for advertising properties on a website. The fines assessed by the City under this section are not authorized by the Ordinance. In addition, HomeAway does not facilitate payments. HomeAway makes available invoice creation and tracking tools as well as integration with payment processors with whom the Listing Owner must independently contract and that a Listing Owner may or may not choose to use, but HomeAway does not directly or indirectly bill, collect, or hold money on the Listing Owner s behalf. iv. The City is attempting to collect double taxes on the same properties. HomeAway.com and VRBO.com are both websites owned by HomeAway.com, Inc. that list many of the same properties, based on the Listing Owner s choice. The City has assessed fines for failure to collect taxes against both HomeAway and VRBO. Taxes are only due if a property is actually rented. If a property is rented, it does not matter whether it was advertised on a single website or 100 websites, the home cannot be rented multiple times simultaneously regardless of how many websites advertised it. The City s attempts to double tax HomeAway and VRBO for the same listings is not authorized by the Ordinance. c. Fines under D are not authorized by the Ordinance because these fines can only be assessed against Operators and HomeAway is not an Operator. PCC D states that Operators of Type A and Type B accessory short-term rentals as described in Section Chapter must include their Type A Permit Number or Type B Conditional Use case file number, as applicable, in all advertising and other listing services.

8 Page 8 HomeAway is not an Operator. Even if the City could successfully define HomeAway as a booking agent (which HomeAway disputes because it is not an agent of the Listing Owners or the travelers ), booking agents are not Operators based on the definitions included in the Ordinance. Further, the section under which these fines are assessed specifically refers to the definition of an Operator in another portion of the Portland City Code PCC section That portion of the PCC is included below and it is clear that HomeAway is not an Operator under that section of the code either: Description and Definitions A. Description. An accessory short-term rental is where an individual or family resides in a dwelling unit and rents bedrooms to overnight guests for fewer than 30 consecutive days. There are two types of accessory short-term rental: 1. Type A. A Type A accessory short-term rental is where no more than 2 bedrooms are rented to overnight guests. 2. Type B. A Type B accessory short-term rental is where 3 or more bedrooms are rented to overnight guests. B. Definitions. For the purposes of this chapter, the following words have the following meanings: 1. Resident. The individual or family who resides in the dwelling unit. The resident can be the owner or a long-term renter. 2. Operator. The resident or a person or entity that is designated by the resident to manage the accessory short-term rental. For all the reasons stated above, each of the fines assessed against HomeAway are improper and cannot be legally levied against HomeAway under the Ordinance. HomeAway requests that the City rescind these fines in their entirety, either through the redetermination process, including an oral hearing, or through other processes permitted by the Portland City Code or other applicable laws.

9 Page 9 Sincerely, Michael Simons