Document Number
07-12
Tax Type
Retail Sales and Use Tax
Description
No sales tax when a loyalty program guest redeems points for a complimentary room
Topic
Taxable Transactions
Date Issued
03-23-2007


March 23, 2007





Re: Request for Ruling: Retail Sales and Use Tax

Dear *****:

This is in reply to your letter submitted on behalf of ***** (the "Taxpayer"), in which you request a ruling on the application of the retail sales and use tax to transactions resulting from the Taxpayer's guest loyalty program. I apologize for the delay in responding to your letter.

FACTS


The Taxpayer owns, manages and franchises its brands of hotels in Virginia and worldwide. The Taxpayer manages a guest loyalty program and requires all of its hotels to participate in the program. Guests who are members of the guest loyalty program earn points with every qualifying stay at one of the Taxpayer's hotels. The points cannot be exchanged for cash and are not assigned a dollar value for purposes of redemption.

Each month, the hotels are assessed a monthly fee that is held in the program fund (the "Fund"). The monthly fee is based on a percentage of room revenues attributable to members of the program that earned points in a given month. The fund is not owned by or housed within the Taxpayer or any other affiliated entity. Rather, the Fund is a segregated bank account, maintained under the name of the Taxpayer as an agent for the hotels. The money contributed to the Fund is held on behalf of each individual hotel in proportion to its monthly payments into the Fund. When guests redeem points for complimentary accommodations, a certain amount of money is distributed to the hotel from the Fund. The distribution takes place on a monthly basis and is usually in the form of a credit on the monthly invoice issued by the Taxpayer. However, in some cases the distribution may be made in the form of a check.

RULING


You ask the Department to confirm the ruling in Public Document (P.D.) 04-68 (8/24/04) that the tax does not apply to the redemption of loyalty program points in exchange for complimentary rooms. Based on the information presented, the Taxpayer's guest loyalty program is similar to that of the taxpayer's in P.D. 04-68. Accordingly, the Taxpayer is not required to collect and remit the sales tax when a loyalty program guest redeems points for a complimentary room.

You also question the application of the tax when the hotel providing the complimentary room receives payment from the Fund (to which the hotel has previously contributed) upon loyalty program points redemption.

Virginia Code § 58.1-602 provides, in pertinent part, that a "sale" is "any transfer of title or possession, or both, exchange, barter, lease or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property and any rendition of a taxable service for a consideration . . . ." Pursuant to the definition of sale, the Taxpayer is not required to remit the tax on the money redistributed to the hotels from the Fund, following a transaction that involves the provision of complimentary or reduced rate hotel accommodations to a loyalty program guest. The transfer of money from the Fund to the hotel does not involve the exchange of tangible personal property or taxable services for a consideration, and thus does not constitute a sale as defined in the statute. Additionally, the money contributed to the Fund was taxed upon receipt from the hotels' customers. The hotels are merely receiving back the money contributed to the Fund following a qualifying sale.

This response is based on the facts provided as summarized above. Any change in facts or the introduction of new facts may lead to a different result. Additionally, this ruling and the ruling in P.D. 04-68 do not apply to the transient occupancy tax. The transient occupancy tax, governed by Va. Code §§ 58.1-3819 and 58.1-3840, is a local tax that cities and certain counties are authorized to impose. See Public Document 88-63 (4/6/88).

The Code of Virginia sections cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department of Taxation's website. If you have any questions about this ruling, you may contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
                    • Sincerely,

                • Janie E. Bowen
                  Tax Commissioner
AR/54139P

Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46