Tax Type
Retail Sales and Use Tax
Description
Cancellation/Contractually to pay the full amount of the contract, plus applicable taxes,
Topic
Collection of Tax
Taxable Transactions
Date Issued
08-12-2014
August 12, 2014
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This is in reply to your letter in which you request a ruling regarding the application of the Virginia retail sales and use tax to cancellation charges made by ***** (the "Taxpayer") in the event a customer (the "Customer") cannot fulfill its obligations for rooms and meals. I apologize for the delay in responding to your request.
FACTS
The Taxpayer was under contract with the Customer to provide rooms and meals for a five night stay for a set fee. Under the terms of the contract, if the Customer did not cancel by a certain date prior to the event, the Taxpayer would charge the Customer the entire contract amount. The contract between the Taxpayer and the Customer states that the Taxpayer has removed the reserved block of rooms from its saleable inventory, and that in the event of cancellation, the Customer will be charged the entire amount for the rooms and meals as liquidated damages, not as a penalty, plus applicable taxes. The contract also provides a pricing list for meals in the event of cancellation.
In the present case, the Customer cancelled its event and was charged the entire amount stated in the event contract, minus a credit for classes the Customer provided to the Taxpayer in lieu of payment. The Taxpayer charged the Customer for the remaining balance, plus the 5.3% Virginia sales tax. The Customer takes exception to the additional charge for sales tax, and the Taxpayer requests a written ruling confirming this is the proper tax application.
RULING
Title 23 of the Virginia Administrative Code 10-210-730 provides that, "the tax applies to the sale or charge for any room or rooms, lodgings or other accommodations furnished to transients by any hotel, motel, inn... or other similar place." In the present case, it must be determined whether the charge to the Customer upon cancellation of rooms and meals qualifies as payment for the rooms and meals, or the charge is a nominal cancellation fee not associated with the Customer's contractual obligations.
The contract between the Taxpayer and the Customer addresses charges the Customer will incur in the event of a cancellation. The contract provides that in the event of cancellation, the Customer is contractually obligated to pay to the Taxpayer amounts specifically set forth in the contract "as liquidated damages and not as a penalty... plus applicable taxes." In the event the Customer cancels within 89 days of the scheduled event, the Customer is obligated to pay 100% of the contracted amount to cover all rooms, food and beverages.
Based on the cited regulation and the contract language, I find that in this case the charge to the Customer for cancellation of the event is clearly a charge for unused rooms and meals, and not an unrelated cancellation fee or penalty. The Taxpayer is also obligated contractually to pay the full amount of the contract, plus applicable taxes, in the event of a cancellation. The public document cited by the Customer, P.D. 10-3 (1/13/2010) addresses a nominal cancellation fee that is clearly different than the cancellation terms charged in this instance. In addition, the Taxpayer properly credited to the Customer amounts associated with services rendered by the Customer, resulting in the proper application of the Virginia retail sales tax to the remaining balance.
I trust that the foregoing responds to your inquiry. The regulation and public document cited are available on-line at www.tax.virginia.gov in the Laws, Rules, and Decisions section of the Department's website. If you have any questions concerning this ruling, please contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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Craig M. Burns
Tax Commissioner
AR/1-5686692884.P
Rulings of the Tax Commissioner