Tax Type
Retail Sales and Use Tax
Description
Resort hotel and complex where negotiated groups rates applied
Topic
Appropriateness of Audit Methodology
Date Issued
12-10-2003
December 10, 2003
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in reply to your letter in which you seek correction of the Department's retail sales and use tax audit assessment issued to ***** (the "Taxpayer") for the period January 1998 through December 2000. I apologize for the delay in the Department's response.
The Taxpayer is a resort hotel and complex offering lodging as well as a number of recreational, health and entertainment activities at additional costs. The Taxpayer disputes the Department's audit assessment related to attrition fees and golf cart fees.
Attrition Fees
Facts: A group or an organization enters into a binding contract with the Taxpayer to rent a block of rooms for a stated period of time. For example, an organization requests a block of 100 rooms at a negotiated rate. Services charges are added to the charge for the room that cover the normal amenities included in hotel rooms, as well as maid services. Upon arrival of the organization's participants, it is discovered that only 80 rooms will be occupied. Because the organization did not cancel the 20 "extra" rooms within the time limitations established in the contract, the organization is billed for all the rooms, but the unoccupied rooms do not include service charges.
The Taxpayer classifies the charges for the unoccupied rooms as "attrition fees." You contend that the attrition fees represent payment for damages related to a customer's failure to fulfill an underlying contract and do not represent a sale of tangible personal property or accommodations. Accordingly, the Taxpayer requests that these fees be removed from the Department's assessment.
Determination: Virginia Code § 58.1-602 defines "sales price" as "the total amount for which tangible personal property or services are sold, including any services that are a part of the sale." Somewhat more broadly, the statute defines "gross proceeds" as "the charges made or voluntary contributions received for ... furnishing services." Accordingly, these provisions serve to ensure that the tax is collected on the total price charged for tangible personal property, accommodations, and any services that are part of the transaction.
Title 23 of the Virginia Administrative Code (VAC) 10-210-730 provides that, "The tax applies to the sale or charge for any room or rooms, lodgings or accommodations furnished to transients by any hotel, motel, inn ... or other similar place." When the Taxpayer entered into the agreement to furnish the customer with a block of rooms, a right to occupy the rooms was rendered to the customer. While the hotel performed its part of the contract by making the rooms available, the customer failed to occupy the full number of rooms to which a right to occupy was extended.
For the sale or charge for any room or rooms to be subject to the retail sales tax, the room must be furnished to a transient by the hotel. While the Virginia regulations do not require that a room must be occupied, the Taxpayer in this case conveys a right to the transient to occupy the room or rooms, in accordance with its responsibility under the terms of the contract to make available a room or rooms. Therefore, the customer was obligated under the terms of the contract to pay for the rooms furnished, whether occupied or not, because it neither adjusted the number of rooms needed nor cancelled rooms in a timely manner. Consequently, the customer had a right to occupy the rooms but did not do so. The attrition fees constitute taxable charges, and I find no basis to remove them from the audit.
Golf Fees
Facts: Guests of the facility may play a round of golf or they may pay as a member of the golf facility, a guest of the member, season pass holder, owner's club member, through a negotiated rate for a special group, etc. In some cases, the participant may choose to play an additional round. At issue are the Taxpayer's charges to the customer for the golf and cart fees. In most instances, for regular play, the customer is charged a set total price inclusive of green and cart fees with tax computed on the cart fees. The Taxpayer states that while the customer is given a receipt reflecting a total price without a breakdown of greens fees and cart fees, the "booked" detail reflects a separate amount for each item that the Taxpayer's computer system places into separate general ledger accounts. The Taxpayer contends that the breakdown sufficiently reflects the correct charges; therefore, the Department's audit should be revised to remove the amounts not subject to the tax.
With regard to certain groups where negotiated rates applied, the Taxpayer states that the cart fee was waived with the remaining amount designated as greens fees for general ledger purposes. In instances where the customer decided to play a second round, the Taxpayer states that the customer was charged a second greens fee but no cart fee. In each of these examples, the Taxpayer states that the auditor has erroneously picked up the amount in question as charges inclusive of cart fees. The Taxpayer seeks to have these amounts removed from the audit sample.
Determination: Virginia Code § 58.1-625 provides that a dealer is required to separately state the amount of the tax and add the tax to the sales price or charge. Title 23 VAC10-210-340(A) reflects additional guidance on the above statutory requirement, stating "Identification of the tax by a separate writing or symbol is not required provided that the amount of the tax is shown as a separate item on the record of the transaction." (Emphasis added).
The foregoing statute and regulation establish the requirement that the tax is a separate item to be added to the price of goods sold at retail and shown on the receipt to the customer. When the Taxpayer correctly applied the tax to the golf carts but did not list the tax separately on the record of the transaction (the customer's receipt), it failed to meet the requirement. See Public Documents (P.D.) 87-116 (03/31/87) and 92-262 (12/28/92), which illustrate the Department's long-standing position in this matter. Therefore, as the receipts tendered to the customers reflected a lump sum charge, I find that the auditor properly included such charges in the assessment.
Notwithstanding the above, I understand the Taxpayer's internal records reflect a breakdown of the charges reflecting the greens fee, cart fee and tax on the cart fee. For the audit period at issue only, I will allow for an adjustment of the lump sum charges based on the breakdown reflected in the internal records. In the future, the tax must be separately stated on all customer invoices. See P.D. 90-107 (07/09/90).
With regard to golf fees for special groups, the Taxpayer states that the fees reflected a charge for the greens fee only. The auditor requested a copy of the contracts associated with the special groups; however, the Taxpayer was unable to provide any documentation to determine the make-up of the charges. Consequently, without some verifiable evidence to show that no part of the charges for such special groups constitutes tangible personal property, there is no basis to allow for any revision of this issue.
In regard to fees associated with a second round of golf, the Taxpayer states that second rounds could possibly include a golf cart, but that the billings for second rounds were for green fees only. On the Taxpayer's daily recap, however, two types of billings are noted. One billing reflects a $5.00 charge for a second round without a cart; the other billing reflects a $25.00 charge for a second round inclusive of the cart fee, but without any application of the tax. Accordingly, as the Taxpayer's records failed to reflect a charge for the sales tax on cart fees, the Department's auditor was correct in including this area in the assessment.
Sample
The Department's audit methods include the use of a sampling technique when a detailed audit is not beneficial to either the taxpayer or the auditor. The use of such a method has been proven to produce final results within a narrow percentage range of the actual amount that would have been determined by a detailed audit.
In this case, the Department's auditor utilized a one-month sample that was an average period based on an analysis of the Taxpayer's gross sales reported. The results were extrapolated only for the months of April through October of each audit year, using gross sales as the basis for the computations. The months encompassing April through October were chosen because they represent the normal period for golfing based on weather conditions.
The courts have held that a tax assessment is prima facie correct. The burden is upon the taxpayer to prove that the assessment is incorrect. Based on all of the information before me, the Taxpayer has not met this burden. In addition, the auditor has not deviated from the procedures used as a basis in other sample audits. Accordingly, I do not find cause to allow an adjustment of the audit in light of the proven and established methods used by the Department's auditors.
Conclusion
The Department's auditor will contact the Taxpayer within 30 days to review internal records as they relate to the golf fees charged to the customer on a lump sum basis. If the Taxpayer can also provide documentation concerning the golf fees for special groups, the auditor will review this area as well. In all other respects, the assessment is correct as issued. Please note that should the requested information not be readily available, the assessment will become immediately due and payable inclusive of any accrued interest.
If you have any questions regarding this response, please contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****@tax.state.va.us or at *****.
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- Sincerely,
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- Kenneth W. Thorson
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- Tax Commissioner
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- Kenneth W. Thorson
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AR/42145Q
Rulings of the Tax Commissioner