Important Information Regarding The New Digital Media Fee
Digital Media Fee
TAX BULLETIN 09-5
Virginia Department of Taxation
May 21, 2009
IMPORTANT INFORMATION REGARDING
THE NEW DIGITAL MEDIA FEE
Effective July 1, 2009, legislation enacted in the 2009 Session of the General Assembly, Senate Bill 1421 (2009 Acts of Assembly, Chapter 531), imposes a new Digital Media Fee on the in-room rental or purchase of digital media at the rate of 10 percent of the charge for the digital media. The Digital Media Fee will be imposed in facilities offering guest rooms rented out for continuous occupancy for fewer than 90 days, such as hotels and motels.
“Digital media” means any audio-visual work provided through the in-room television in any guest room in any temporary lodging for a separate charge, including but not limited to, any motion picture, television or audio programming, or game, regardless if it is transmitted in an analog or digital format. The term “digital media” does not include internet access, telephone service, or television programming provided by a Provider for no separate charge, i.e., basic cable, or premium channels.
“Provider” means any person who provides digital media to guests in temporary lodgings located in the Commonwealth who is or should be registered with the Department of Taxation as a Provider for purposes of the Digital Media Fee.
“Temporary lodging” means a room or rooms, lodging, or accommodations provided to transients for continuous occupancy for less than 90 days in any hotel, motel, bed and breakfast establishment, inn, tourist camp, tourist cabin, club, townhouse, condominium, apartment, or other similar place offering guest rooms for continuous occupancy for less than 90 days.
Retail Sales and Use Tax Treatment of Lodgings
Generally, the charge for any lodgings or other accommodations in Virginia is subject to the Retail Sales and Use Tax at a combined state and local rate of 5%. Any additional charges made in connection with the rental of a room or other lodging or accommodations are generally deemed to be a part of the charge for the room and are typically subject to the tax. This includes additional charges for movies, local telephone calls, and similar services. The tax does not apply, however, to rooms, lodgings, or accommodations supplied to a guest for a period of 90 continuous days or more. Whenever a transient occupies a room for 90 continuous days or more, the retailer furnishing the room must refund any sales tax actually collected from the person.
Digital Media Fee
The new law imposes the Digital Media Fee on all charges for Digital Media as defined above at a rate of 10 percent. The Digital Media Fee will be administered by the Department of Taxation (TAX) in the same manner as the Retail Sales and Use Tax. The new Digital Media Fee is in addition to the current Retail Sales and Use Tax on such charges.
All charges for digital media are subject to the Digital Media Fee until the contrary is established. A Provider is required to collect the Digital Media Fee on taxable charges for digital media unless the Provider receives a properly executed Retail Sales and Use Tax exemption certificate from the guest that would exempt the guest from the Retail Sales and Use Tax on charges for the temporary lodging. As the Digital Media Fee is a fee on the purchase of a service, certificates of exemption providing an exemption from the Retail Sales and Use Tax on a purchase of tangible personal property will not relieve a customer from paying the Digital Media Fee.
The exemption certificate, when accepted in good faith, will relieve the Provider from any liability for the payment or collection of the Digital Media Fee, except upon notice from TAX that the certificate is no longer acceptable. However, a certificate that is incomplete, invalid, infirm or inconsistent on its face is never acceptable, either before or after notice. In the event that a Provider fails to collect the Digital Media Fee due on charges for digital media, the Provider is liable for the payment of the fee.
Federal Government Agencies
Charges for lodgings and other accommodations are exempt from the Retail Sales and Use Tax when such purchases are made by the federal government or its employees traveling on government business. In order for this exemption to apply, payment must be made directly by the federal government, pursuant to an official purchase order (e.g., by direct billing to the government or through use of a government credit card). Only credit card purchases for which the credit of the federal government is bound and billings are sent directly to and paid by the government, are exempt from the Retail Sales and Use Tax. Likewise, the Digital Media Fee will not apply to the in-room rental or purchase of digital media by the federal government or its travelers as long as payment is made directly by the federal government and provided such sales are supported by the proper documentation.
State and Local Government Agencies
Charges for lodging and other accommodations, however, are subject to the Retail Sales and Use Tax when paid for by a state or local government or employees of such, regardless of whether the purchases are made pursuant to required official purchase orders. Thus, employees of state and local government agencies must pay the Retail Sales and Use Tax on charges for hotel and other accommodations, regardless of whether the purchases are made pursuant to required official purchase orders. Likewise, the Digital Media Fee will apply to the in-room rental or purchase of digital media by state and local government agencies and their employees and a state or local government agency exemption certificate may not be used to exempt a state or local government agency employee's in-room rental or purchase of digital media from the Digital Media Fee.
As the Retail Sales and Use Tax nonprofit entity exemption available to most organizations under Va. Code § 58.1-609.11 is limited to purchases of tangible personal property, only a few nonprofit entities that have been issued an exemption under this section will enjoy an exemption from the Digital Media Fee. Charges for the in-room rental or purchase of digital media provided to organizations holding a valid nonprofit entity certificate of exemption issued by TAX will only qualify for exemption if the exemption certificate specifically states that it is valid for the purchase of “taxable services.” Furthermore, the self-issued exemption certificate available to churches under Va. Code § 58.1-609.10 (16) is never applicable to the Digital Media Fee.
Each Provider must be registered with TAX to file the necessary returns and to remit the Digital Media Fee. If a Provider is already with registered with TAX to collect other taxes and, to the extent that TAX is able to identify such Provider as potentially liable for collecting and remitting the Digital Media Fee, TAX will notify such Provider in advance of the effective date of the Digital Media Fee, and supply the Provider with the necessary forms and instructions to register.
If a Provider does not receive forms and instructions from TAX prior to the effective date of the Digital Media Fee, the Provider must register for the Digital Media Fee by completing and submitting Form R-1, Business Registration Application Form, to TAX, which is available for download at TAX's website at www.tax.virginia.gov, or by using iReg, which is available on TAX’s website.
Filing of Monthly Returns and Collection of Fee
Every Provider will be required to file a monthly Form DM-1, Digital Media Fee Return and remit the Digital Media Fee due on or before the twentieth day of the month following the month in which the fee is billed. The Digital Media Fee must be reported on Form DM-1, Digital Media Fee Return. The Digital Media Fee cannot be reported on the Provider’s Form ST-9, Retail Sales and Use Tax Return.
The Digital Media Fee for each period becomes delinquent on the twenty-first day of the succeeding month if not paid. Providers who are registered but do not receive a Form DM-1 from TAX are still required to complete and submit a Form DM-1 by the return's due date. The Form DM-1 and instructions will be available online in the Download Forms section of TAX's website, located at www.tax.virginia.gov.
In the event that a Provider collects the Digital Media Fee on exempt or non-taxable transactions, the Provider must remit the erroneously or illegally collected fee to TAX unless or until the Provider can affirmatively show that the fee has been refunded to the customer or credited to his account. A Provider who intentionally neglects, fails or refuses to collect the Digital Media Fee is liable for and must pay the fee himself.
Until further notice, TAX will not accept Digital Media Fee returns or payments filed or paid online. Payment must be submitted with the monthly paper return, Form DM-1, or by electronic funds transfer.
Every Provider will be allowed a credit against the fee shown to be due on the return for the amount of fee previously paid on accounts that are owed to the Provider and that have been found to be worthless within the period covered by the return. The credit, however, cannot exceed the amount of the uncollected payment determined by treating prior payments on each debt as consisting of the same proportion of payment, Digital Media Fee, and other nontaxable charges as in the total debt originally owed to the Provider. The amount of accounts for which a credit has been taken that are thereafter in whole or in part paid to the Provider must be included in the first return filed after collection.
Every provider holding a certificate of registration will be allowed a dealer discount for accounting for and remitting the Digital Media Fee if the amount due was not delinquent at the time of payment. The discount will be allowed in the form of a deduction on each return. The discount will be allowed on the first three percent of the ten percent Digital Media Fee in the percentages listed in the following table. In order to simplify the calculation, on Form DM-1, providers will use the discount rates listed in the following table to calculate their discount:
|Monthly Taxable Sales||Percentage||Discount Rate|
|At Least||But Less Than|
Providers must compute the discount without regard to the number of Digital Media Fee certificates of registration that they hold. Providers holding two or more Digital Media Fee certificates of registration must compute the dealer's discount based upon taxable in-room rentals and purchases of digital media from all business locations subject to the Digital Media Fee. This requirement applies to Providers filing consolidated returns and those filing separate returns for each business location.
Penalties and Interest
Except with respect to fraudulent returns, the failure to file a timely return and make a timely and full payment of this fee will subject the Provider to a specific penalty to be added to the fee in the amount of six percent if the failure is for not more than one month, with an additional six percent for each additional month, or fraction thereof, during which the failure continues, not to exceed thirty percent in the aggregate. In no case, however, shall the penalty be less than ten dollars and such minimum penalty shall apply whether or not any fee is due for the period for which such return was required.
In the case of a false or fraudulent return where willful intent exists to defraud the Commonwealth of this fee, or in the case of a willful failure to file a return with the intent to defraud the Commonwealth of this fee, a specific penalty of fifty percent of the amount of the proper fee shall be assessed.
The rate of interest on omitted taxes and assessments is the “Underpayment Rate” established pursuant to § 6621 (a) (2) of the Internal Revenue Code plus two percent.
Taxpayers may appeal Digital Media Fee issues to TAX using the administrative appeals process applicable to other state taxes administered by TAX set forth in Va. Code § 58.1-1820 et seq. and 23 Virginia Administrative Code 10-20-165, available online in the Tax Policy Library section of TAX's website, located at www.tax.virginia.gov.
If you have any questions regarding this Tax Bulletin, please contact TAX at: (804) 367-8037.