Sales Tax Slice: South Carolina Tax Treatment of Hurricane Rental Insurance Blows off Course from Other Southern States

Tourism is the number one industry in South Carolina, responsible for more than $17 billion in spending and employing more than 200,000 people, approximately 10 percent of the state’s workforce. However, weather has a significant effect on the state’s tourism and travel. Over the past 10 years, 22 hurricanes and tropical storms hit South Carolina shores. This month, with the Atlantic’s hurricane season in full swing, the South Carolina Department of Revenue clarified that hurricane rental insurance is exempt from the state’s sales tax on rooms, lodgings and accommodations.

This approach differs from several other states in the hurricane corridor, which generally subject the insurance charges to tax.

Along the coast of South Carolina, many persons furnishing accommodations offer hurricane rental insurance for a fee to protect vacationers in the event of mandatory evacuation due to a hurricane. In most cases, this insurance is optional.

For example, if a vacationing family has rented a home for one week beginning on a Friday and a mandatory evacuation order is issued the following Monday, then the insurance will cover the family for the time lost as a result of the order. Additionally, the insurance may also cover a situation where the family is unable to take occupancy of the home and forego the vacation because of the mandatory evacuation and subsequent damage caused by the hurricane.

South Carolina imposes a 7 percent sales tax for rooms, lodgings and accommodations, and a 6 percent “additional guest charge” on other charges such as room service, laundering and dry-cleaning services, in-room movies, telephone services and the rental of meeting rooms.

In a recent revenue ruling, the department explained that an optional charge for hurricane rental insurance is not subject to either the 7 percent sales tax on accommodations or the 6 percent sales tax “additional guest charge.” However, if the charge for hurricane rental insurance is mandatory, then it is subject to the 7 percent sales tax as part of the charge for furnishing the sleeping accommodations. Such sleeping accommodations are considered “furnished” if the vacationer takes occupancy, or has the right to occupy, a rental room for any or all of the time agreed upon at the time of the reservation.

The Department went on to clarify certain scenarios in which a guest reserves a room but then is either unable to occupy or is evacuated from the room. If a mandatory evacuation order or hurricane causes the complete cancellation of the vacation because law enforcement will not allow anyone to enter the area, or a hurricane destroys the hotel room, then the sleeping accommodations were not “furnished” and the room charges are not taxable. Additionally, the optional or mandatory hurricane rental insurance are not subject to tax. 

If a guest reserves and pays for sleeping accommodations at a hotel but either does not cancel the reservation or does not use the reservation by the prescribed time set by the hotel, even though the accommodations were not used, the guest had the right to use them. Therefore, they are deemed “furnished” and are subject to tax. Additionally, if a guest makes a reservation, which is subsequently cancelled, either by the guest or the hotel, the administrative fee or deposit retained or charged by the hotel is not subject to tax.

South Carolina’s specific approach on hurricane rental insurance differs from other southern states:

  • Alabama- while there is no specific mention of hurricane rental insurance, Alabama imposes a 5 percent lodging tax for the rental of hotel-style accommodations;
  • Florida- the state’s 6 percent sales and use tax applies to mandatory hurricane insurance included in rental prices;
  • Georgia- while Georgia does not have regulation specifically reference hurricane rental insurance, it is subject to the state’s general 4 percent sales tax;
  • Louisiana- hurricane insurance is considered part of the rental price and subject to the state’s 4 percent general sales tax;
  • Mississippi- hurricane insurance charges are subject to Mississippi’s 7 percent flat sales tax;
  • North Carolina- hurricane insurance is included in the rental charge for hotel accommodations and subject to the state’s 4.75 general sales tax rate; and
  • Texas- besides the cost of a hotel room, all other charges, including hurricane insurance, are subject to the state’s 6.25 percent sales tax.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: What are the economic impacts of such tax impositions on hotels and vacationers?

For more information about this and other state tax issues, sign up for a free trial of the Bloomberg BNA Premier State Tax Library. 

By Mark J. Kennedy

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