May 11, 2026

Re:    Request for Ruling: Retail Sales and Use Tax

Dear *****:

    This will respond to your letter submitted on behalf of ***** (the “Taxpayer”) seeking a ruling as to the applicability of the Virginia retail sales and use tax to credit card fees and hotel cancellations.

    This response is based on the facts provided as summarized below. Any change in facts or the introduction of new facts may lead to a different result.

FACTS

    The Taxpayer, a hotel, is in the process of implementing a separately itemized credit card fee for group events, banquets, and catering services in order to offset the credit card fees charged by credit card companies. In addition, the Taxpayer remits sales tax for groups and transients that either cancel their bookings or deviate from the contracted amounts. The Taxpayer asks several questions about the taxability of credit card and cancellation fees.

RULING

Question 1

Are credit card fees subject to Virginia sales and use tax?

    The Taxpayer is in the process of implementing a credit card fee for group events, banquets, and catering for customers that pay by credit card. The fee, separately stated on an invoice, would be based on the total bill including room rentals, food and beverage sales, service charges, ancillary revenue, and applicable taxes.

    Virginia Code § 58.1-603 imposes the sales tax on, among other things, the gross sales price of certain taxable services and each item of tangible personal property sold at retail or distributed in Virginia. Virginia Code § 58.1-602 defines sales price to include “the total amount for which tangible personal property or services are sold, including any services that are a part of the sale…” Accordingly, any charge in connection with the sale of tangible personal property or service is considered taxable, unless it is specifically exempt pursuant to another section of Chapter 6 of Title 58.1 of the Code of Virginia. Title 23 of the Virginia Administrative Code (VAC) 10-210-730 A provides that “[t]he 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.”

    Title 23 VAC 10-210-4040 provides that transactions involving both the sale of tangible personal property and the provision of services are generally either taxable or exempt on the full amount charged based on whether the “true object” of the transaction is the provision of an exempt service or a taxable retail sale. In Public Document (P.D.) 23-16 (2/21/2023), the Department ruled that a credit card fee is subject to tax because the true object of the purchase of supplies using a credit card is the purchase of taxable tangible personal property, not the credit card fee.

    Conversely, in P.D. 05-11 (2/4/2005), the Department ruled the true object of the purchase of a prepaid credit card, along with an activation or reloading fee, is the potential purchase power of the card and not the tangible credit card. Under those circumstances, the purchase price and activation or reloading fees are not subject to tax.

    In this case, the true object of the room rental transactions is the provision of taxable accommodations. The true object of the banquet and catering services is the taxable charge for the sale of food. See P.D. 98-31 (2/20/1998) and P.D. 10-200 (8/31/2010). As such, the credit card fee the Taxpayer intends to impose with the sale of accommodations and events would be subject to tax. 
    
Question 2

Are cancellation fees incurred by group event customers and transient guests subject to Virginia sales and use tax?

    The Taxpayer states that it has been collecting and remitting sales tax on customers that cancel bookings or deviate from the terms of an event contract. The Taxpayer has also been remitting tax on fees for canceled transient reservations.    

    Title 23 VAC 10-210-730 C provides that “[a]ny 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.” Cancellation fees are not considered to be an additional room charge because the customer is not charged for the room and has no right of possession. See P.D. 10-3 (1/13/2010). Thus, in general, the fee for canceling transient reservations would not be subject to the tax.

    However, there are situations in which such fee is subject to tax. In P.D. 14-140 (8/12/2014), for example, the Department ruled that a cancellation fee is taxable when a consumer is contractually obligated to pay a fee for all or a portion of the price of rooms, food, and beverages for a cancelled event. The Department reasoned that, under the terms of the contract, the cancelation fee for the event was a charge for unused rooms and meals and not an unrelated cancellation fee or penalty.

    As such, the Taxpayer will need to review the terms of its contract with its customers. If the contract does not hold customers liable for sales tax upon cancellation, then no sales tax should be collected. If the contract requires payment of sales tax in the event of cancellation, then sales tax should be collected and remitted.

    The Code of Virginia sections and regulations 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 ruling, you may contact ***** in the Office of Tax Policy and Legal Affairs, Tax Adjudication and Resolution Division, at ***** or *****.

                                                                               Sincerely,

                                                                              Kristin L. Collins
                                                                              Tax Commissioner
                                                                              Commonwealth of Virginia

AR/5222.B