Document Number
06-1
Tax Type
Retail Sales and Use Tax
Description
Car rental fee is added as a separately stated item on the customer's hotel bill
Topic
Assessment
Property Subject to Tax
Date Issued
01-04-2006

January 4, 2006



Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *****:

This will reply to your letter in which you seek correction of a retail sales and use tax assessment issued to ***** (the "Taxpayer") for the period September 2000 through September 2003. I apologize for the delay in responding to your appeal.

FACTS


The Taxpayer owns and operates a hotel. The Taxpayer partners with a car rental company to rent automobiles to customers that rent accommodations from the Taxpayer. The Taxpayer obtains the information needed for the car rental contract from the customer and provides this information to the car rental company. The car rental company prepares a rental contract that is signed by the customer when the rental car is picked up.

The Department audited the Taxpayer and assessed sales tax on the portion of the charge associated with the automobile rentals. The Taxpayer maintains that the customer is liable to the rental company for the cost of the car rental because the rental contract is between the customer and the car rental company. The Taxpayer states that, as a convenience to the customer, the car rental fee is added as a separately stated item on the customer's hotel bill. The Taxpayer collects the rental fee from the customer and remits the fee to the rental company. To support its position that it is not liable for the tax, the Taxpayer cites Public Documents (P.D.) 96-295 (10/21/96) and 04-135 (9/16/04).

DETERMINATION


Hotel Room Charges

Title 23 of the Virginia Administrative Code (VAC) 10-210-730 A addresses the application of the tax to rentals of rooms and accommodations by hotels and states:
    • The tax applies to the sale or charge for any room or rooms, lodgings or accommodations furnished to transients by any hotel, motel, inn, tourist camp, tourist cabin, camping grounds, club, or other similar place.

Title 23 VAC 10-210-730 C discusses charges made by hotels in connection with charges for rooms and accommodations and states the following:
    • Any additional charges made in connection with the rental of a room or other lodging or accommodations are deemed to be a part of the charge for the room and are subject to the tax.

Based on information provided to the Department during the audit, the Taxpayer billed certain customers a government rate for a package referred to as "room and ride." This package includes room accommodations and a rental car and was billed as a lump-sum charge on customers' invoices. The Taxpayer kept internal records that showed an allocation of the lump-sum room charges between room rentals and car rentals. The sum of these amounts equaled the total room charge billed to customers. The Taxpayer's customer invoices did not reflect a separately stated charge for car rentals, as the Taxpayer suggests. The Taxpayer was unable to show the Department documentation containing separately stated charges billed to customers for car rentals.

While it is true that each of the Taxpayer's customers signed a contract with the car rental company, the Taxpayer was also under contract with the car rental company to pay the car rental fees collected from its customers each month to the rental company. The contract between the car rental company and the Taxpayer shows that the car rental company issued a monthly statement to the Taxpayer for the total amount of car rental fees collected during the previous month. Under the terms of the contract, the Taxpayer was obligated to pay the total rental fees due for the month to the car rental company within a specified period of time.

The Department has previously ruled in P.D. 95-17 (2/2/95) that packages offered by hotels, motels, inns, etc., that include a single charge for accommodations and other services or tangible personal property are subject to the tax on the total charge for the package. In P.D. 95-17, a hotel offered a "gold package" to customers that included a hotel room, breakfast, a round of golf and a complimentary tee gift. The hotel did not charge guests sales tax on the golf green fee portion of the package. The Department ruled that the entire charge was subject to the tax based on the definitions of "sales price" and "gross proceeds" found in Va. Code § 58.1-602. The provisions of Title 23 VAC 10-210-730 C also support this conclusion.

In this case, the Taxpayer held out to customers that cars could be rented as part of a "room and ride" package provided at a government rate. The car rental company did not directly bill the Taxpayer's customers for the car rentals. Rather, the Taxpayer billed and collected the charges made to car rental customers. Billing information provided to the Department shows that the Taxpayer did not bill the car rental charges as a separate item on customers' bills. I find that the Taxpayer's case is on point with the Department's treatment of the room and golf packages discussed in P.D. 95-17.

Motor Vehicle Rentals

The rental of motor vehicles is generally subject to the Virginia Motor Vehicle Sales and Use Tax. Title 23 VAC 10-210-990 A provides that:
    • Sales, leases, and rentals of motor vehicles are not subject to the retail sales and use tax provided they are subject to the Virginia motor vehicle sales and use tax administered by the Department of Motor Vehicles and further provided that such tax has been paid. Any type of motor vehicle which is not subject to the motor vehicle sales and use tax shall be subject to the retail sales and use tax when sold, leased or rented.

The regulation explains that when a motor vehicle is rented and the motor vehicle sales and use tax is not charged by the renter of the motor vehicle, the rental is then subject to the retail sales and use tax. The Taxpayer has not provided evidence that the motor vehicle sales and use tax was charged on car rentals. Based on Title 23 VAC 10-210­990, the Taxpayer was required to charge the retail sales and use tax on car rentals.

Based on the determination above, the assessment is correct with respect to the car rental charges. I note that the Department's auditors have agreed to make an adjustment to the audit that is unrelated to this determination. I will also allow the Taxpayer an opportunity to provide evidence to the Department's auditors that motor vehicle sales and use tax was collected and remitted to the Department of Motor Vehicles on the car rentals. If this is the case, the car rental charges will be removed from the audit. The audit will be adjusted and a revised bill issued that reflects the new balance due. The revised bill should be paid within 30 days to avoid the accrual of additional interest.

The Code of Virginia sections, regulations and public documents cited, along with other reference documents, are available on-line in the Tax Policy Library section of the Department's web site, located at www.policylibrary.tax.virginia.gov. If you have any questions concerning this determination, please contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
              • Sincerely,

              • Kenneth W. Thorson
                Tax Commissioner



AR/53166S


Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46