12.	Commitments and Contingencies

We enter into non-cancelable fixed purchase and service obligations in the ordinary course of business. These arrangements primarily consist of advertising commitments and service contracts. At December 31, 2011 future non-cancelable purchase and service obligations greater than $100,000 and one year were as follows (in thousands):

2012	$	4,737
2013		3,721
2014		2,638
2015		2,426
2016		1,652
Thereafter		6,520
Total obligations	$	21,694

Insperity is a defendant in various lawsuits and claims arising in the normal course of business. Management believes it has valid defenses in these cases and is defending them vigorously. While the results of litigation cannot be predicted with certainty, except as set forth below, management believes the final outcome of such litigation will not have a material adverse effect on our financial position or results of operations.

Pennsylvania Sales Taxes

Pennsylvania imposes a sales tax on “help supply services.” The Pennsylvania Department of Revenue has maintained that PEO services constitute help supply services and are subject to the tax. Insperity has not collected this sales tax from its Pennsylvania clients but instead has paid Pennsylvania the sales tax for all periods through 2009.

In January 2010, the Commonwealth Court of Pennsylvania (the “Appeals Court”) in the matter titled All Staffing vs. Commonwealth of Pennsylvania (“All Staffing Case”), ruled that PEO services are not subject to the Pennsylvania sales tax. The Commonwealth of Pennsylvania filed exceptions to the Appeals Court ruling, and in December 2010, the Appeals Court denied the State's exceptions and upheld its previous ruling. The All Staffing Case is currently under appeal with the Pennsylvania Supreme Court (“Supreme Court”).

For the period January 1, 2010 through September 30, 2011, Insperity accrued approximately $2.5 million in Pennsylvania sales tax. As Insperity believes its PEO services are not subject to the sales tax, it reduced the accrual for such amounts in the fourth quarter of 2011. As of December 31, 2011, Insperity has no sales tax liabilities recorded related to Pennsylvania sales tax. However, it is reasonably possible that Pennsylvania may assert that Insperity has failed to pay sales tax on its PEO services for the periods 2010 and 2011. If the Supreme Court overturns the Appeals Court ruling in the All Staffing Case, the likelihood of such a claim increases significantly. Although Insperity intends to vigorously defend itself if such a claim is made, the ultimate tax that could be incurred if Insperity's defense is not successful for the 2010 and 2011 periods is approximately $3.0 million.

Additionally, based upon its belief that its PEO services are not subject to the Pennsylvania sales tax, Insperity filed a refund claim for $2.9 million with the Pennsylvania Department of Revenue (“Department”) for the sales taxes paid in error for the period April 1, 2007 through December 31, 2009. The Department has put the refund request on hold, pending the Supreme Court's decision in the All Staffing Case. The Department may ultimately deny Insperity's refund claim, which may result in the refund claim being appealed by Insperity to the Pennsylvania Board of Finance and Review (“Board”), and litigation may ultimately be necessary. Therefore, the amount, if any, and the timing of our recovery on the refund claim is uncertain. Accordingly, we have not recognized any asset for the refund claim in our financial statements. In the event we are successful in our refund claim, we will recognize a gain of $2.9 million.

California Unemployment Taxes

As a result of a 2001 corporate restructuring, Insperity filed for a transfer of its state unemployment tax reserve account with the Employment Development Department of the State of California (“EDD”). The EDD approved Insperity's request for transfer of the reserve account in May 2002 and also notified Insperity of its new contribution rates based upon the approved transfer. In December 2003, we received a Notice of Duplicate Accounts and Notification of Assessment (“Notice”) from the EDD. The Notice stated that the EDD was collapsing the accounts of Insperity's subsidiaries into the account of the entity with the highest unemployment tax rate. The Notice also retroactively imposed the higher unemployment insurance rate on all of Insperity's California employees for 2003, resulting in an assessment of $5.6 million. In January 2004, we filed petitions with an administrative law judge of the California Unemployment Insurance Appeals Board (“ALJ”) to protest the validity of the Notice, asserting several procedural and substantive defenses.

One procedural defense included in Insperity's appeal asserts that EDD failed to meet the statutory requirement related to serving a proper notice within the stipulated time frame and that all of the statutes of limitations concerning EDD's ability to reassess or modify unemployment tax rates for the periods addressed in the Notice had expired (“Notification Defense”). During 2010, a California Circuit Court issued a ruling in favor of EDD regarding a dispute involving a taxpayer who made arguments similar to Insperity's Notification Defense. The Supreme Court of California subsequently denied the taxpayer's petition for review. Insperity subsequently received a statement of account from the EDD indicating taxes, penalties and interest due of approximately $8.1 million.

While still denying all liability, we entered into a written agreement with the EDD in September 2011 to fully and finally settle this dispute (the “Settlement Agreement”). Pursuant to the terms of the Settlement Agreement, we agreed to pay $3.1 million (the “Settlement Amount”) to the EDD. The Settlement Amount of $3.1 million was paid and recorded in other income (expense).