Tax Type
Retail Sales and Use Tax
Description
Lodging; Services in connection with accommodations
Topic
Taxability of Persons and Transactions
Date Issued
10-21-1996
October 21, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*************
In your letter, you seek correction of the sales and use tax audit assessment issued to *************(the Taxpayer). I apologize for the delay in responding to your letter. Copies of all references are enclosed.
FACTS
The Taxpayer is a luxury hotel. An audit for the period January 1993 through July 1995 resulted in an assessment of tax on various untaxed sales and purchases. Of these, the Taxpayer disagrees with the tax assessed on separately stated services charged to hotel guests for laundering and dry cleaning; golf and tennis lessons; facials, haircuts, manicures, pedicures, massages and various other beauty services. The Taxpayer also maintains that no tax should apply to other charges for equipment rentals, books purchased and tickets for admission to athletic contests when obtained from outside vendors on behalf of a hotel guest and re-billed to the hotel guest.
Laundry services are provided by the hotel to its guests, but dry cleaning services are provided by outside vendors. Golf and tennis lessons are provided by salaried employees of a club which is adjacent to the Taxpayer's hotel and owned and operated by its sister corporation. Beauty services are provided by independent operators on call to the hotel. All charges are billed to the hotel who pays these vendors and re-bills the hotel guest for such charges.
DETERMINATION
Virginia Regulation (VR) 630-10-48(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." Emphasis added.
It is the department's understanding that the Taxpayer does not include in its charges for room rentals any of the items and services at issue. Rather, the hotel guest at some point during his or her stay at the Taxpayer's hotel may desire any one of the above items or services. To accommodate its guest, the Taxpayer will arrange and pay for the particular services, rentals, or tangible personal property requested by the guest. The Taxpayer in turn re-bills these charges to its guest as a separate line item on the invoice given to the guest.
As noted in P.D. 95-17 (2/2/95), services sold in connection with accommodations are taxable as part of the charge for the room. In the instant case, however, the services at issue are not part of the accommodations offered to guests. Accordingly, the service charges at issue are not sold in connection with the Taxpayer's accommodations and are exempt of the tax provided such charges are separately stated on invoices furnished to its hotel guests. For instance, the Taxpayer did not hold out to its guests that the charge for furnishing accommodations included laundry and dry cleaning services, beauty treatments, golf and tennis lessons, and use of adjoining club facilities. In each instance, the guest had a choice as to whether or not to obtain any of these services. If the guest chose any of the services, then the guest would be billed an extra charge. On the other hand, had any of these services been offered as part of a package deal for accommodations, then the entire transaction for accommodations and services would be subject to the tax.
Based on the foregoing, I find basis that separate charges for services made by vendors in this case are not taxable. Accordingly, the audit will be revised to remove the tax and associated interest assessed on all pass-through charges for the services at issue. When the Taxpayer adds an amount (a markup) to service charges made by vendors, the markup is taxable as an additional charge in connection with accommodations. Accordingly, the tax assessed on such markups will remain in the audit. This tax treatment is consistent with the department's taxing of markups on services, such as toll charges. Please refer to the above cited public document and the following public documents: P.D. 84-261 (12/28/84), P.D. 88-72 (5/2/88) and P.D. 95-172 (6/26/95).
I find no basis, however, for removing the assessment of tax on pass-through charges for tangible personal property obtained by the Taxpayer for resale or rental to its guests. In such instances, the Taxpayer may purchase or rent the item exempt of the tax by presenting a resale exemption certificate (Form ST-10) to the vendor. As these are sales or rentals to consumers, the Taxpayer is required to collect the sales tax on such charges. As some rechargeables were for the re-billing of football tickets, such charges will be removed from the audit based on the reasons provided above for exempt pass -through charges.
The audit will be revised in accordance with this determination. Since the assessment has been paid, a refund will be issued with interest as soon as practical. If you of the should have any questions about the revision, please contact *****of the department's ********* District Office at ******.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10706R
Rulings of the Tax Commissioner