96-010
Responses
January 23, 1996 and March 11, 1996 and May 24, 1996
Request
RE:
Request for sales tax ruling.
Dear
Tax Advisor:
XXXXX
(XXXXX) hereby requests a ruling as to whether the services described below are
subject to Utah sales tax.
1. Pay Per View Service
XXXXX
provides, to hotel guests, a pay-per-view video entertainment service on
television sets in hotel rooms (“PPV Service”).
The
PPV Service is provided by means of a “PPV System” in the hotel, consisting of
a central control unit linked by wire to the television sets in the hotel
rooms. The control unit contains a rack
of video cassette players (VCPs), a computer and other electronic
equipment. The hotel provides space for
the installation of the PPV system, which is owned, installed and maintained by
XXXXX, and is solely under the control of XXXXX.
The
guest selects a movie from a menu of available titles appearing on the
television screen. When the guest presses the corresponding number on the
television set's remote control, a specific VCP in the PPV System control unit
is electronically accessed and begins to run the tape of the movie. (In some smaller hotels the PPV System is
accessed by telephone through a PBX system rather than by the remote control.) The signal is carried to the television set
in the guest's room by wire.
The
agreement between XXXXX and the operator of the hotel provides that, based upon
daily information reported by the monitoring unit of the PPV System, the hotel,
on behalf of XXXXX, is to place a specified charge on the guest's hotel bill
for each movie viewed. The hotel
retains a specified percentage (e.g., 10%) of each charge collected and remits
the remainder to XXXXX monthly.
2.
Free to Guest Service
XXXXX
may provide various channels of television programming (e.g., XXXXX) that are
delivered to the hotel by satellite or cable and are free to the hotel
guests. The hotel would pay a specific
monthly rate per room for this service.
3.
Video Game Service
XXXXX
may provide a selection of video games for the hotel guests. The games would be accessed via a game
controller in the hotel room and provided in a manner similar to the PPV
Service described above, except that CD-ROM players would be used instead of
VCP's.
Please
advise whether ( 1 ) any of the above services are subject to Utah sales tax,
and (2) if any of such services are taxable, whether the responsibility for
remitting the tax to the state is upon the hotel or XXXXX.
Your
prompt attention to these questions will be appreciated. If you need any further information, please
contact the undersigned.
Under
penalties of perjury, I declare that I have examined this request, including
accompanying documents, and to the best of my knowledge and belief, the facts
presented in support of the requested ruling are true, correct and complete.
Very
truly yours,
XXXXX
XXXXX
RE:
Advisory Opinion - Application of sales tax to hotel pay for view service
Dear
XXXXX
We
have received your request for an advisory opinion as to whether your company's
sales of pay-for-view television services are taxable. You may be interested to know that the Utah
State Legislature has hired a consultant to conduct an extensive study of tax
issues relating to the telecommunications fields. The outcome of the study may result in changes to the tax code
that will impact the tax status of your company's transactions in the future. In the meantime, we find as follows:
Section
59-12-103 (1) (b) (ii) imposes sales tax on intrastate telephone service. Telephone service is defined by Utah
Administrative Rule R865-19S-103 to include various types of transmissions by
wire, light waves or other electromagnetic means. Although the language of the rule seems to encompass television
transmissions, we have interpreted the rule narrowly to include only telephone
service. On that basis, we have advised
satellite and cable companies that transmissions to their customers are not
taxable transactions so long as they are stated separately from taxable
services on the customer's bill or invoice.
The same rule applies to pay for view services and video game service
offered to hotel customers if the customer is receiving only a television
signal. If the hotel rents videos or
CD-ROMs to its customers, such rental charges are taxable. Of course, the hotel must pay sales tax on
its purchase or lease of the videos and video equipment used to provide this
service.
Please
contact us again if you have further questions.
For
the Commission,
Alice
Shearer
Commissioner
Utah
State Tax Commission
Office
of the Commission
210
North 1950 West
Salt
Lake City, Utah 84134
Attention:
Ms. Alice Shearer
Commissioner
Dear
Ms. Shearer:
This
is in reply to your ruling letter dated March 11, 1996 , regarding the
applicability of Utah sales tax to the services provided by XXXXX (XXXXX).
We
ask you to reconsider the portion of the ruling in which you state that
“[w]hether the video is placed in a video machine in the customer's room or
elsewhere in the hotel, the transaction is taxable as a rental of tangible
personal property. “We believe that the
transaction is the sale of a nontaxable service, not a rental of tangible
personal property. However, if it
should be held that XXXXX's services are taxable, we also ask you to clarify
whether the responsibility for remission of the tax to the state would be upon
XXXXX or the hotel. The following
discussion explains our positions.
1. Taxability of Services.
Utah
Code Ann. 59-12-103 (1) (m) imposes a tax on the amount paid or charged for
“leases and rentals of tangible personal property.” The legal attributes of a “lease” are well established. “Lease”
is defined as “a transfer of the right to possession and use of goods for a
term in return for consideration.” Utah
Code Ann. §70A-2a-103 (j ) .
The
requirement that there must be a “transfer of the right to possession and use”
of the property for a transaction to constitute a lease clearly applies for
sales tax purposes. In Snarr
Advertising. Inc. v. Utah state Tax Commission, 432 P. 2d 882
(1967), the Utah Supreme court stated:
We
think the Legislature meant to tax those pieces of personal property the
possession or use of which was given over to the lessee. 432 P. 2d at 884.
Likewise,
U.A.C. R865-19S-32 (A) states that the sales tax applies “[w]hen a lessee has
the right to possession, operation, or use of tangible personal property.”
Under
the typical agreement between XXXXX and the hotel operator (the “Agreement” ),
the right to possession and use of the video cassettes remains entirely in
XXXXX. The Agreement provides that the
video cassettes must be kept under lock and key provided by XXXXX and are not
accessible, even to the hotel's staff, without XXXXX's prior consent. The hotel operator must use reasonable
efforts to prevent any person under its control from duplicating or altering
the cassettes, and must report promptly to XXXXX any unauthorized use of the
cassettes of which it becomes aware.
Because
both the actual physical possession and the right to possession, operation and
use of the video cassettes remain totally in XXXXX, and are never transferred
to the hotel guest, the transaction between XXXXX and the guest cannot be a
lease. Rather, the transaction is a
sale of a nontaxable service.
In
Broadcast International. Inc. v. Utah state Tax Commission, 882 P.2d 691
(Utah App. 1994), the taxpayer provided services (e.q. , background
music, in-store advertising, electronic mail, video conferencing, stock and
commodity quotes, check verification and credit card services) to retail
businesses over a private satellite network.
The issue was whether the purchases by the taxpayer of the equipment
installed at a subscriber's location in order to provide the services were
purchases for “resale” and thus exempt from taxation. The taxpayer argued that the purchases were for “resale” because
the transaction between the taxpayer and the subscriber was a “sale” within the
meaning of Utah Code 59-12-102(10) (e).
That section defines “sale” to include “any transaction under which
right to possession, operation or use of any article of tangible personal property
is granted under a lease or contract and the transfer of possession would be
taxable if an outright sale were made.
“The court said:
. . [w]e must
determine whether the essence of the transaction is an exchange for services or
for tangible personal property, because the sale of services is generally not
taxable...However, such a determination depends on whether the services
provided are incidental to the personal property that is at the heart of the
transaction, or whether the personal property is incidental to the services for
which the parties bargained.
In
the case before us, the essence of the transaction was the sale of
services. Subscribers paid Broadcast
for access to the satellite network and related benefits, not to buy equipment
. . . Thus, Broadcast provided a service for which sales tax could not be
assessed against its subscribers.
882 P. 2d at 697-98 (Emphasis added. )
The
situation is the same here. The
“essence of the transaction is an exchange for services, “ not “for tangible
personal property.”
An
Alabama case also is on point. In White v. Storer Cable Communications,
507 So.2d 964 (Ala. Civ. App. 1987) , the court held that a cable television
company was not “leasing or renting” its convertor boxes located at
subscribers' premises. It said that the
“substance of the transaction was cable service; the convertors were merely a
means serving that end.”
The
situation is the same under Utah law.
Your March 11 letter concedes that if a cable or satellite television
company provides video programming service to hotel guests, the charges for
such service would not be taxable. This
would be true even though the company would place its equipment ( e.g.,
convertor boxes and remote controls) in the hotel room in order to facilitate the
service. Such equipment would not be
held to be “leased” or “rented” to the guest.
The “essence of the transaction” clearly would be the sale of a service;
the use of the equipment would be incidental to the service.
It
is even clearer that XXXXX' s transaction is not a lease or rental, because the
hotel guest has no physical possession of the video cassette. The cassette is not even located in the
hotel room. The guest cannot stop and
restart the cassette, rewind it or exercise any type of dominion over it. He or she does not care and may not even
know how the signal carrying the movie is delivered to the television set by the use of a video cassette, cable,
satellite or whatever. Clearly, the
transaction is the nontaxable sale of a service, not a taxable lease or rental
of tangible property.
2. Entity Remitting Tax.
If
it should be held that XXXXX's services are subject to the sales tax, it is not
clear from your ruling whether XXXXX Gr the hotel is the proper entity to remit
the tax to the state. We believe that
XXXXX provides its pay-per-view services directly to the hotel guests, not to
the hotel, and thus is the proper entity to remit the tax, for the reasons
discussed below.
The
Agreement between XXXXX and the hotel operator allows XXXXX to install its equipment
in the hotel in order to provide its pay-per-view service ( “PPV Service” ) to
the hotel guests. The Agreement also
requires the hotel to perform billing and collection services for XXXXX, by
providing that the hotel, “on behalf of XXXXX”, is to place a charge on the
guest's hotel bill for each movie viewed (“Movie Fee”). The hotel retains a specified percentage
(e.g., 10%) of each Movie Fee collected, as payment from XXXXX in compensation
for the services rendered to XXXXX as XXXXX's agent, and remits the remainder
to XXXXX. The Agreement further
provides that the “Movie Fees are the property of XXXXX and shall be held in
trust for XXXXX. “Under these
arrangements, XXXXX is not selling the PPV Service to the hotel, and the hotel
is not selling the service to the hotel guest.
XXXXX is selling the service directly to the guest; the hotel merely
acts as billing and collection agent for XXXXX.
Because
the parties regard XXXXX as the vendor of the service, the Agreement also provides
that “As directed by XXXXX, each hotel shall, on behalf of XXXXX, collect any
applicable taxes levied on or measured by the Movie Fee and shall remit all
such taxes to XXXXX for payment by XXXXX to the appropriate taxing
jurisdictions.”
Utah
Code Ann. §59-12-107(1) (a) requires the “vendor” to collect and remit the
taxes to the state. “Vendor” is defined
in Utah Code Ann. 59-12-102(22) (a) to include “any person receiving any
payment or consideration upon a sale of tangible personal property or any other
taxable item or service under Subsection 59-12-103 (1), or to whom such payment
or consideration is payable. “For the
reasons discussed above, we submit that XXXXX, not the hotel, is the
vendor under this definition.
If
XXXXX's services are held to be taxable, XXXXX recognizes and accepts its
responsibility, as the “vendor, “ for remitting the taxes to the state. We believe that, in addition to being the
correct legal interpretation of the Agreement and the applicable statutes,
remission of the taxes by XXXXX would be advantageous to the state, because it
would allow the state to assure compliance by auditing one corporation, XXXXX,
rather than numerous individual hotel operators.
3. Conclusion.
For
these reasons, we respectfully request that you reconsider your earlier ruling
and issue a revised ruling stating that XXXXX' s services are not subject to
sales tax. However, if you rule that
the services are taxable, we request a further ruling that XXXXX is the
property entity to remit the applicable sales taxes to the state.
Thank
you for your attention to this matter.
Very
truly yours,
XXXXX
XXXXX
RE:
Application of sales tax to charges for pay-per-view services
Dear
XXXXX
In
February, we issued an advisory opinion to XXXXX regarding the application of
sales tax; to pay for view movies shown in hotels and motels. XXXXX, in turn, shared that advisory opinion
with a number of hotel or motel proprietors.
Consequently, the Tax Commission has received a number of inquiries
about this issue because the advisory opinion appears to conflict with
information published in a Tax Commission publication entitled Tourist
Facilities; Utah Tax Information. This
letter is to clarify the Commission's position on charges for pay-per-view
videos.
In
our discussions with representatives of the hotel and motel industry, we have
learned that the technology used to deliver movies to guest rooms may vary from
one facility to the next. Whether the charge for in-room movies is taxable
turns on the manner in which it is delivered.
Some
tourist facilities use a technology which delivers movies to guest rooms via
satellite or cable t.v. transmission.
Because subscription charges for cable and satellite charges are not taxable,
the charges for in-room videos delivered in this manner are not taxable.
Other
tourist facilities are using technology which requires that a video be placed
in a video machine in the facility hotel or motel facility. When activated on request of the guest, the
machine starts the video and broadcasts the video to the guest's room. This transaction is no different from a
transaction in which a customer rents a video from a video store. Whether the video is placed in a video
machine in the customer's room or elsewhere in the hotel, the transaction is
taxable as a rental of tangible personal property.
With
regard to sales tax collected so far, if a hotel or motel proprietor has
collected sales tax on tax exempt satellite or cable t.v. video services, the
tax must be remitted to the Tax Commission.
A guest can request a refund of that tax through regular refund
procedures.
Unfortunately,
the processes for updating the state' s tax code are no match for the
rapid-fire changes occurring in technological fields. Consequently, we often rely on taxpayer inquiries for cues that
our tax policies are in need of attention.
We also rely on your organization to help us disseminate tax policy
information that concerns the hotel and motel industry. We hope you will feel free to distribute
this information to your members.
For
the Commission,
Alice
Shearer
Commissioner
XXXXX
RE:
Application of sales tax to charges for pay-per-view services
Dear
XXXXX
In
February, we issued an advisory opinion to XXXXX regarding the application of
sales tax to pay for view movies shown in hotels and motels. XXXXX, in turn, shared that advisory opinion
with a number of hotel or motel proprietors.
Consequently, the Tax Commission has received a number of inquiries
about this issue because the advisory opinion appears to conflict with
information published in a Tax Commission publication entitled Tourist
Facilities; Utah Tax Information. This
letter is to clarify the Commission' s position on charges for pay-per-view
videos.
In
our discussions with representatives of the hotel and motel industry, we have
learned that the technology used to deliver movies to guest rooms may vary from
one facility to the next. Whether the charge for in-room movies is taxable turns
on the manner in which it is delivered.
Some
tourist facilities use a technology which delivers movies to guest rooms via
satellite or cable t.v. transmission.
Because subscription charges for cable and satellite charges are not
taxable, the charges for in-room videos delivered in this manner are not
taxable.
Other
tourist facilities are using technology which requires that a video be placed
in a video machine in the facility hotel or motel facility. When activated on request of the guest, the machine
starts the video and broadcasts the video to the guest's room. This transaction is no different from a
transaction in which a Customer rents a video from a video store. Whether the video is placed in a video
machine in the customer’s room or elsewhere in the hotel, the transaction is
taxable as a rental of tangible personal property.
Unfortunately,
the processes for updating the state's tax code are no match for the rapid-fire
changes occurring in technological fields.
Consequently, we often rely on taxpayer inquiries for cues that our tax
policies are in need of attention. We
appreciate your willingness to provide us with information to help us
understand this issue. We hope this
letter resolves any confusion created by our January 23 advisory opinion to
XXXXX.
For
the Commission,
Alice
Shearer
Commissioner
XXXXX
RE:
Application of sales tax to charges for pay-per-view services
Dear
XXXXX
In
February, we issued an advisory opinion to XXXXX regarding the application of
sales tax to pay for view movies shown in hotels and motels. XXXXX, in turn, shared that advisory opinion
with a number of hotel or motel proprietors.
Consequently, the Tax Commission has received a number of inquiries
about this issue because the advisory opinion appears to conflict with
information published in a Tax Commission publication entitled Tourist
Facilities; Utah Tax Information. This
letter is to clarify the Commission's position on charges for pay-per-view
videos.
In
our discussions with representatives of the hotel and motel industry, we have
learned that the technology used to deliver movies to guest rooms may vary from
one facility to the next. Whether the charge for in-room movies is taxable
turns on the manner in which it is delivered.
Some
tourist facilities use a technology which delivers movies to guest rooms via
satellite or cable t.v. transmission.
Because subscription charges for cable and satellite charges are not
taxable, the charges for in-room videos delivered in this manner are not
taxable.
Other
tourist facilities are using technology which requires that a video be placed
in a video machine in the facility hotel or motel facility. When activated on request of the guest, the
machine starts the video and broadcasts the video to the guest's room. This transaction is no different from a
transaction in which a customer rents a video from a video store. Whether the video is placed in a video
machine in the Customer's room or elsewhere in the hotel, the transaction is
taxable as a rental of tangible personal property.
Unfortunately,
the processes for updating the state's tax code are no match for the rapid-fire
changes occurring in technological fields.
Consequently, we often rely on taxpayer inquiries for cues that our tax
policies are in need of attention. We
appreciate your willingness to provide us with information to help us
understand this issue. We hope this
letter resolves any confusion created by our January 23 advisory opinion to
XXXXX.
For
the Commission,
Alice
Shearer
Commissioner
XXXXX
RE:
Advisory Opinion date January 23, 1996
Dear
XXXXX
In
February, we issued an advisory opinion to XXXXX regarding the application of
sales tax to pay for view movies shown in hotels and motels. XXXXX, in turn, shared that advisory opinion
with a number of hotel or motel proprietors.
Consequently, the Tax Commission has received a number of inquiries
about this issue because the advisory opinion appears to conflict with
information published in a Tax Commission publication entitled Tourist
Facilities; Utah Tax Information. This
letter is to clarify the Commission's position on charges for pay-per-view
videos.
In
our discussions with representatives of the hotel and motel industry, we have
learned that the technology used to deliver movies to guest rooms may vary from
one facility to the next. Whether the charge for in-room movies is taxable
turns on the manner in which it is delivered.
Some
tourist facilities use a technology which delivers movies to guest rooms via
satellite or cable t.v. transmission.
Because subscription charges for cable and satellite charges are not
taxable, the charges for in-room videos delivered in this manner are not
taxable.
Other
tourist facilities are using technology which requires that a video be placed
in a video machine in the facility hotel or motel facility. When activated on request of the guest, the
machine starts the video and broadcasts the video to the guest' s room. This transaction is no different from a
transaction in which a customer rents a video from a video store. Whether the video is placed in a video
machine in the Customer’s room or elsewhere in the hotel, the transaction is
taxable as a rental of tangible personal property.
With
regard to sales tax collected so far, if a hotel or motel proprietor has
collected sales tax on tax exempt satellite or cable t.v. video services, the
tax must be remitted to the Tax Commission. A guest can request a refund of
that tax through regular refund procedures.
Unfortunately,
the processes at work in updating the state's tax code are no match for the
rapid- fire changes occurring in telecommunications technology. Consequently, we rely on taxpayer inquiries
like yours for important cues that our tax policies are lagging behind and need
attention. We appreciate your raising the issue, and we hope this letter clears
up any confusion surrounding our advisory opinion of January 23, 1996
For
the Commission,
Alice
Shearer
Commissioner
XXXXX
RE:
Application of sales tax to charges for pay-per-view services
Dear
XXXXX,
In
February, we issued an advisory opinion to XXXXX regarding the application of
sales tax to pay for view movies shown in hotels and motels. XXXXX, in turn,
shared that advisory opinion with a number of hotel or motel proprietors. Consequently, the Tax Commission has
received a number of inquiries about this issue because the advisory opinion
appears to conflict with information published in a Tax Commission publication
entitled Tourist Facilities; Utah Tax Information. This letter is to clarify the Commission's position on charges
for pay-per-view videos.
In
our discussions with representatives of the hotel and motel industry, we have
learned that the technology used to deliver movies to guest rooms may vary from
one facility to the next. Whether the charge for in-room movies is taxable
turns on the manner in which it is delivered.
Some
tourist facilities use a technology which delivers movies to guest rooms via
satellite or cable t.v. transmission.
Because subscription charges for cable and satellite charges are not
taxable, the charges for in-room videos delivered in this manner are not
taxable.
Other
tourist facilities are using technology which requires that a video be placed
in a video machine in the facility hotel or motel facility. When activated on request of the guest, the
machine starts the video and broadcasts the video to the guests room. This transaction is no different from a
transaction in which a customer rents a video from a video store. Whether the video is placed in a video
machine in the customer's room or elsewhere in the hotel, the transaction is
taxable as a rental of tangible personal property.
With
regard to sales tax collected so far, if a hotel or motel proprietor has
collected sales tax on tax exempt satellite or cable t.v video services, the
tax must be remitted to the Tax Commission. A guest can request a refund of
that tax through regular refund procedures.
Unfortunately,
the processes for updating the state's tax code are no match for the rapid-fire
changes occurring in technological fields.
Consequently, we often rely on taxpayer inquiries for Cues that our tax
policies are in need of attention. We
also rely on your organization to help us disseminate tax policy information
that concerns the tourist industry. We
hope you will feel free to distribute this information to Utah tourist
facilities.
For
the Commission,
Alice
Shearer
Commissioner
XXXXX
Re:
Review of opinion letter issued March 11, 1996
Dear
XXXXX,
We
have received your request for reconsideration of our March 11 ruling
pertaining to charges by hotels, motels or other guest facilities for video
broadcasts. We have reviewed our prior
rulings on this matter and declined to change our position. However, you have presented additional facts
that require further clarification.
Taxable
rentals/leases
Utah
imposes sales tax on charges for the rental or lease of tangible personal
property. For instance, if a hotel
rented videos and video playing and broadcasting equipment from XXXXX, the
hotel would be required to pay sales tax on the rental charges associated with
the playback and broadcast equipment.
The hotel would also be required to pay sales tax on rental of the
videos if the hotel was considered the final consumer of those items. However, if the hotel rented the videos,
then, in turn, charged it guests for use of the videos, the guest would be considered
the final taxable consumer. In that
case, the hotel could rent the videos tax free from XXXXX under our resale
exemption, but it would be required to collect the sales tax from its customer.
The
arrangement between XXXXX and its customers appears to be a different
arrangement than the arrangement described above. XXXXX pays the hotel a fee or commission for the privilege of
placing its video players and associated equipment in a hotel. The hotel is not
a consumer, but a collection agent. The
transaction between XXXXX and the hotel is not a taxable event. However, the transaction between XXXXX and
the room guest is a taxable transaction.
The use of the video by the guest is akin to any other video rental from
a video store. The fact that the video
tape is placed in a video player by a hotel employee rather than by the room
guest does not change the nature of the transaction. The hotel, as XXXXX's
agent, must collect sales tax on this charge.
We
have made a distinction between charges for video rental and charges for
in-room broadcasts transmitted via satellite or cable television. Satellite and cable transmission are
generally interstate transmissions. As
currently written, Utah law does not allow for taxation of interstate
transmissions. By contrast, the video
broadcasts of the type in question here arise from video tapes which are
present in Utah. As such, they are
taxable. An additional note with regard
to satellite and cable transmissions: the state legislature has commissioned a
study of the entire telecommunications industry. The tax status of these transmissions may change in the future as
a result of that study.
Collecting
and remitting sales tax
As
the vendor, XXXXX is ultimately responsible for remitting the sales tax to the
Tax Commission. The hotel, as your
agent, must collect sales tax from the customer at the time of payment. Whether the hotel is also responsible for
completing sales tax returns and remitting the sales tax on behalf of your
company depends upon your agreement with the hotel. If the hotel does not agree to remit the tax and file the
returns, XXXXX must do so. If your
company does not already have a sales tax license, please use the enclosed form
to apply for one.
Our
staff in Compliance Auditing will contact you to answer any questions that you
have pertaining to sales tax due on past transactions.
For
the Commission,
Alice
Shearer,
Commissioner