Application of Sales and Use Taxes and the
Room Occupancy Tax to the Hotel/Motel Industry
BACKGROUND: Effective October 1, 1991, the Connecticut General Assembly decreased the tax rate for sales and use taxes from 8% to 6% and increased the tax rate for the room occupancy tax from 8% to 12%. (The room occupancy tax is the sales tax applied to the transfer for consideration of the occupancy of a room in a hotel or lodging house.) Previously, sales (including room occupancy transfers) that were subject to sales and use taxes had been taxed at the same rate.
On December 14, 1992, the Department issued PS 92(15) to provide information on how sales and use taxes and room occupancy tax apply to various charges made by hotels or lodging houses to their guests. This Policy Statement supersedes PS 92(15). It corrects information in COMPLEMENTARY ROOMS AND MEALS concerning the measure of the room occupancy tax where hotels charge an employee to whom a hotel room is provided, restates (in WHERE MEALS ARE FURNISHED WITH THE MEETING ROOM) the circumstances under which charges for meeting rooms are treated as charges for meals, and expressly indicates that the terms of then Commissioner of Revenue Services James F. Meehan's letter of November 21, 1990 to the Connecticut Hotel/Motel Association are intended to be embodied in this Policy Statement.
PURPOSE: This Policy Statement provides information on how sales and use taxes and room occupancy tax apply to various charges made by hotels or lodging houses to their guests. As used in this Policy Statement, the term "hotel" means any establishment that is either a "hotel" or a "lodging house", as defined in Conn. Gen. Stat. §12-407(16) and (17), respectively.
EFFECTIVE DATES: Unless otherwise indicated, the information contained herein is a restatement of Departmental policy on the subject.
STATUTORY AUTHORITY: Conn. Gen. Stat. §§12-407(2)(e) and (h), (17), (18), (19), (20) and (21) and 12-408, as amended by 1991 Conn. Pub. Acts 3, §lll (June Spec. Sess.).
TAXABLE - SERVICES UNDER CONN. GEN. STAT. §12-407(2): With the exception of telecommunications service and community antenna television service, which are discussed below, hotels may purchase taxable enumerated services, such as parking services, health and athletic club services and shopping services, on a resale basis under the following circumstances:
The services are passed on without change to the hotel guest.
There is no intervening use of the services by the hotel.
Where the charge for the services is separately stated on the guest's room bill, sales and use taxes apply (6% rate). Where the charge for the services is not separately stated on the guest's room bill, room occupancy tax applies (12% rate).
TELECOMMUNICATIONS SERVICES AND COMMUNITY ANTENNA TELEVISION SERVICES: Hotels may not purchase telecommunications services and community antenna television services on resale because the Department does not regard hotels as resellers of such services. Hotels must pay sales and use taxes on their purchases of such services. Charges made by a hotel to a guest for telecommunication services and community antenna television services are considered to be for "services and accommodations accompanying the use and possession" of a room in a hotel, and, hence, are "rent" charged for "occupancy". Whether or not charges for such services are separately stated, room occupancy tax applies (12% rate).
NONTAXABLE SERVICES: Charges made by a hotel to a guest for nontaxable services, such as valet, shoe shine, dry cleaning or laundry services, will be treated as part of the services or accommodations accompanying the use and possession of a hotel room. Therefore, charges for such nontaxable services are "rent" charged for the "services and accommodations accompanying the use and possession of a room in a hotel. Whether or not charges for such services are separately stated, room occupancy tax applies (12% rate).
ROOM SERVICE CHARGES: Room service charges for the furnishing, preparing or serving of food, meals or drinks will not be treated as part of the services or accommodations accompanying the use and possession of a hotel room, but will be treated as charges to which sales and use taxes apply (6% rate).
"AMERICAN PLAN": THE PROVISION OF LODGING AND MEALS AT A FIXED PRICE: The term "American Plan" means packages or special price arrangements under which a guest receives lodging and meals at a fixed price. A portion of the charges paid by the guest to the hotel is treated as the purchase price of meals and, thus, subject to the sales and use taxes, and the balance of the charges paid by the guest to the hotel is treated as "rent" for the "occupancy" of a room and, thus, subject to the room occupancy tax. Effective for sales (including room occupancy transfers) made on or after January 1, 1993, the Department will allocate the charges as follows:
% Allocated to Meals:
%Allocated to Room
|room/breakfast, lunch, dinner||50%||50%|
(A "continental breakfast" consists of juice, pastry and coffee.)
COMPLIMENTARY ROOMS AND MEALS: Because the sales and use taxes and the room occupancy tax apply only where there are sales (including room occupancy transfers) for consideration, the provision of complimentary meals and lodging are not subject to sales and use taxes and room occupancy tax. (Barter transactions will be treated by the Department as sales for consideration.) For example:
The provision of free rooms or free meals to a wedding party that has used the hotel's banquet facility is not subject to room occupancy tax.
The provision of a room to a hotel employee, whether or not an on-site employee, as part of the employee's compensation is not subject to room occupancy tax as long as the hotel makes no charge for the occupancy. However, if an employee is required to pay, whether payment is tendered by the employee or an amount in payment is withheld from such employee's wages, hotels must charge room occupancy tax to the employees for the first thirty days of occupancy. Similar rules govern the provision of meals to a hotel employee as part of the employee's compensation. See Conn. Agencies Regs. §12-426-29(e).
LONG TERM OCCUPANCY: Room occupancy tax applies to the first thirty consecutive days of occupancy, regardless of the ultimate length of occupancy. Occupancy for days in excess of thirty consecutive days is not subject to room occupancy tax, including instances where the same room or different rooms are occupied by different personnel of the contracting party.
RENTAL OF ROOMS OTHER THAN FOR LODGING PURPOSES: Charges for a room let out for use or possession other than for lodging purposes, such as charges for a meeting room, are not subject to room occupancy tax, as long as such charges are separately stated, but may be subject to sales and use taxes, as indicated below.
WHERE MEALS ARE FURNISHED WITH THE MEETING ROOM: Where a hotel (or an eating establishment) will not rent a meeting room unless it also furnishes meals, the hotel's total charges, whether or not the charges for the room(s) and meals are separately stated, are treated as charges for the meals, and are subject to sales and use taxes.
Where a hotel will rent a meeting room without furnishing meals, and
meals (whether banquet- or buffet-style) are served or consumed in the meeting room, the hotel's total charges, whether or not the charges for the room and meals are separately stated, are treated as charges for the meals, and are subject to sales and use taxes.
more than one meeting room has been rented for use at the same function, with one room being used for the serving of meals and another room being used for the meeting, the hotel's separately stated and reasonable charge (based on prevailing rates in the area) for the room not used for the serving of meals is not treated as charges for the meals, and is not subject to sales and use taxes. If the charge for the room being used for the meeting is neither separately stated nor reasonable, the hotel's total charges are treated as charges for the meals, and are subject to sales and use taxes.
a third-party caterer is hired and paid directly by the guests, the hotel's charges are not treated as charges for meals, and are not subject to sales and use taxes. However, the caterer's total charges, including any separately stated charge for the room, to the guests are treated as charges for meals, and are subject to sales and use taxes.
a third-party caterer rents the room, the hotel's charges to the caterer are not subject to sales and use taxes. However, the caterer's total charges, including any separately stated charge for the room, to its clients are treated as charges for meals, and are subject to sales and use taxes.
"FURNISHING MEALS": The hotel is not considered to be furnishing meals if it merely provides a self-service table of nonalcoholic beverages and snack items for those attending a meeting. In such event, the hotel's charges for the beverages and snack items are subject to sales and use taxes, but its charges for the meeting room are not.
"MANDATORY GRATUITIES": Application of sales and use taxes to service charges is described in Conn. Agencies Regs. §12-426-29(c)(4)(B), which provides that the ."gross receipts from the sales of meals" include any mandatory service charge unless the seller can establish that (i) the service charge does not inure to the benefit of the seller (the use of such service charge by the seller to reduce his expenses, including his payroll expense, is a benefit to the seller) and (ii) the service charge is remitted, in its entirety, to the service personnel who provided the meal service. The term "service personnel" is limited to personnel involved in the actual serving of the meal to the customer. The term "service personnel" does not include supervisory and administrative personnel, such as the banquet manager, banquet marketing personnel, banquet captain, catering directors and catering managers.
ITEMS USED IN GUEST ROOMS: Hotels are considered to be the consumers of, and may not purchase on a resale basis, hotel equipment, furniture and fixtures, and other items that hotel guests use, such as soaps, shower caps, towels, paper products and similar items. Hotels are considered to be the consumers of any amenities provided gratuitously, such as mints or soda. Hotels must pay tax on such items (if their purchase is not otherwise exempt, such as the purchase of food products for human consumption under Conn. Gen. Stat. §12-412(13) and Conn. Agencies Regs. §12-426-29(b)) at the time of purchase. If the items are purchased from a retailer which is not engaged in business in Connecticut or not authorized to collect Connecticut use tax on Connecticut sales, hotels must report these purchases on, and remit Connecticut use tax with, their Form OS-114 (Sales and Use Tax Return).
EFFECT ON OTHER DOCUMENTS: PS 92(15) is superseded and may no longer be relied upon as of the date of issuance of this Policy Statement. The terms of then Commissioner of Revenue Services James F. Meehan's letter of November 21, 1990 to the Connecticut Hotel/Motel Association are embodied in this Policy Statement, and, accordingly, the letter is superseded. However, the Department will adhere to the dates of compliance set forth in that letter.
PLEASE NOTE THE FOLLOWING NEW INFORMATION ABOUT DRS.
FOR FURTHER INFORMATION: To order forms and publications or for further information, call the Department of Revenue Services at 860-297-5962 (Hartford area or out-of-state) or 1-800-382-9463 (in-state). Forms and publications may be ordered through voice-mail 24-hours a day by choosing Option 3 on your touch tone telephone.
Electronic Delivery Options: You can also obtain tax forms and publications 24-hours a day from our Web home page at http://www.ct.gov/drs. Telecommunications Device for the Deaf (TDD/TT) users only call 860-297-4911 during business hours.
Sales and use taxes
Replaces: PS 92(15) 12/14/92