June 27, 2025
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ***** :
This is in response to your letter submitted on behalf ***** (the “Taxpayer”) in which you seek correction of the retail sales and use tax assessment issued for the period January 2016 through December 2018.
FACTS
An audit was conducted on the books and records of the Taxpayer, a Virginia hotel, for the period at issue. For the three-month sample period, the auditor found accounting variances between the Taxpayer’s management system and the amount of exempt sales reported on its monthly sales tax returns (Form ST-9) that resulted in an understatement of taxable sales. The underreported sales, in addition to other exceptions, were used to compute the audit liability. While it agrees with most of the exceptions, the Taxpayer filed an application for correction contending that the assessed room charges were exempt because they were rented for at least 90 consecutive days.
ANALYSIS
Strict Construction of Exemptions
The Department has the authority to interpret and enforce the laws of the Commonwealth governing taxes in accordance with Virginia Code § 58.1-203. With regard to such interpretations, settled case law requires strict construction of sales and use tax exemptions. Where there is any doubt as to the application of an exemption, the doubt is resolved against the one claiming the exemption. See Commonwealth v. Community MotorBus, 214 Va. 155 (1973); Commonwealth v. Research Analysis Corporation, 214 Va. 161 (1973); and Golden Skillet Corp. v. Commonwealth, 214 Va. 276 (1973).
Accommodations Exemption
Virginia Code § 58.1-609.5 9 provides an exemption for “[t]he sale or charges for any room or rooms, lodgings, or accommodations furnished to transients for more than 90 continuous days by any hotel, motel, inn, tourist camp, tourist cabin, camping grounds, club, or any other place in which rooms, lodging, space or accommodations are regularly furnished to transients for consideration.” Title 23 of the Virginia Administrative Code 10-210-730 B further provides that:
After a transient has occupied a room or received other accommodations for 90 continuous days or more, the dealer furnishing the room or other accommodations may refund any sales tax actually collected from the person. In filing a subsequent return with the Department of Taxation, the dealer may deduct from gross sales in the place provided the amount of the charges for which the tax was refunded.
During the audit, a variance was noted between exempt sales reported on the sales tax returns filed with the Department and exempt sales reported from the property management system. The auditor’s analysis indicated that the variance was due to a discrepancy in the way tax exempt room charges were accounted for between the two items.
Upon further investigation, the auditor found that the property management system was correctly programmed to charge tax on room charges up to the 89th consecutive night of a guest stay, and credit the guest’s bill once the 90-day threshold had been reached. However, in completion of its Virginia returns, the Taxpayer anticipated certain guest rooms would be occupied for more than 90 days. Although taxed in the property management system, the Taxpayer treated these sales as exempt on the Form ST-9. Under these circumstances, the Taxpayer was essentially claiming hotel room charges were exempt before the 90-day threshold had been reached.
Under the Department’s longstanding policy, exempt room charges may only be claimed after the 90-day threshold has been reached. See P.D. 90-76 (4/20/1990), and P.D. 10-251 (11/10/2010).
The Taxpayer’s submission of documentation with its application for correction consisted of one guest folio for each of the three sample months. Although this submission confirmed the correct credit of taxes after the 90th day of a consecutive stay, the folios themselves do not adequately explain the monthly variances found in the three sample months and no other explanation of the variance was submitted.
DETERMINATION
Virginia Code § 58.1-205 provides that any assessment of tax by the Department is deemed to be prima facie correct and that the burden is on the taxpayer to prove the assessment is erroneous or incorrect. In this instance, the Taxpayer has not provided documentation to support its contention that the assessment of tax is incorrect. Accordingly, the Taxpayer has not met the burden of proof requirement.
Based on this determination, the assessment is upheld. An updated bill will be mailed to the Taxpayer shortly. No additional interest will accrue provided the outstanding assessment is paid withing 30 days of the date of the bill.
In the future, the Taxpayer should follow the instructions from the previously referenced regulation. Applicable room charges should be reported in gross sales until the 90-day threshold is met. The dealer may deduct the corresponding room charges previously reported as taxable in the deductions section of the monthly sales tax return (ST-9) after the threshold is satisfied.
The Code of Virginia sections and regulation cited are available online at law.lis.virginia.gov. The public documents cited are available at tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy and Legal Affairs, Tax Adjudication and Resolution Division, at ***** or *****.
Sincerely,
James J. Alex
Tax Commissioner
Commonwealth of Virginia
AR/2182.Z