North Carolina recently enacted an amnesty program targeted at hotels and other accommodation rental entities that failed to pay sales and use taxes on linen rentals. Specifically, this amnesty allows for a reduction of unpaid taxes by up to 90 percent of the total amount assessed against qualifying taxpayers on their linen services, along with a waiver of penalties. This amnesty perhaps reflects an understanding or accommodation (pun intended) of the complicated sales and use tax rules governing hotels across the country. Indeed, hotel operators across the states face an array of taxing regimes that apply differing rules to their purchases of complimentary and disposable items, food, and services (including linen services), in addition to the charges they make to their guests.
The rules governing purchases by a hotel vary tremendously across the 50 states. In West Virginia, Wyoming, and Colorado, hotels may purchase items that are complimentary to the guests such as shampoos, coffee, and newspapers tax-free. Conversely, in Texas, purchases of hotel consumables, such as soap, shampoo, conditioner, and mouthwash, placed in hotel rooms for use by guests are not eligible for Texas' sale-for-resale exemption. In Arkansas, a hotel’s purchases of such items are also taxable. Additionally, most states, such as Florida, Georgia, and Colorado, tax hotels on their purchases of furniture.
With respect to a hotels’ purchase or rental of linens specifically, some, but not all, states have issued directly on-point guidance as to whether such rentals are tax-exempt sales for resale. Colorado has jurisprudence establishing that a hotel’s purchase of linens is taxable. Georgia enumerates by regulation that purchases of linens are taxable. Florida advises in a Technical Assistance Advisement that charges by linen companies for maintaining a cleanly laundered linen inventory at a hotel are taxable. Other states don’t address the taxability of linen rentals to hotels, perhaps leading to the confusion that prompted North Carolina’s amnesty program.
Further, the taxability of charges to guests for in-room amenities can vary from state to state. In New York, charges for towel and linen service and providing additional beds or cots to guests are taxable. Charges for the safekeeping of a guest’s valuables are also taxable in New York. In North Dakota, however, fees for services provided by a hotel to its customers, such as in-room movie rentals, valet services, laundry, or babysitting are not subject to sales tax. In Indiana, somewhat confusingly, if charges for amenity services are separately stated, they are nontaxable; however, if an amenity charge represents the transfer or rental of tangible personal property or if the charge is for a service that is essential and regularly provided in the furnishing of accommodations, the charge is taxable.
As for me, on those rare occasions when I get a break from chasing a one-year-old, I don’t worry much about what’s taxable and what’s not as long as I can still get room service.
Continue the discussion on Bloomberg BNA's State Tax Group on LinkedIn: Should purchases by hotels be taxable?
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