96-048

Response March 8, 1996

Request

DATE: February 27,1996

RE: Advisory Opinion on in-room movies

I talked to XXXXX about the advisory opinion XXXXX wrote regarding sales tax on in-room movies and video games. The only concern XXXXX had with the opinion as written was that the last sentence indicates the Commission's clarification will have prospective application. Does prospective application mean from the date XXXXX signs this advisory opinion or from the date she signed the opinion for XXXXX?

We have had audits where the taxpayers have paid an assessment on this issue and there are many hotels and motels that have been collecting tax for in-room movies. We currently have a case in appeals with this very issue. What impact will this advisory opinion have on the case currently in appeals or those who have paid audit assessments on this issue?

XXXXX agrees that the Commission's position is correct as stated in the advisory opinion. The problem is with the prospective application. XXXXX said he has talked to XXXXX about this concern and he thought she was going to discuss it with the Commission.

Let me know if you need any more information.

March 8, 1996

XXXXX

Deputy Director, Auditing Division

State Tax Commission

RE: Advisory Opinion Sales tax on in-room movies and video games

Dear XXXXX,

This advisory opinion is in response to your question regarding the application of sales tax to charges by hotels and similar facilities for in-room movies and videos. Your question was prompted by our recent opinion to XXXXX. That opinion appears to represent a departure from our past instructions to hotel and motel proprietors. This opinion clarifies our position on the issue.

Hotels and motels may provide a variety of television options to their guests. For instance, many hotels and motels provide satellite or cable t.v. to guests. Generally the cable charge in included in the room charge. A hotel may also provide videos for in-room viewing. Whether the charge for in-room movies is taxable turns on the manner in which it is delivered.

Some hotels or motels use a system in which the main video machine is located in a specified place and under control of the proprietor. The hotel rents a selection of videos for a given amount of time. A guest may request that one of those videos be broadcast to the t.v. in the guest's room. A hotel employee places the video in a machine and directs the broadcast of that 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.

XXXXX and some like types of businesses presented us with a different scenario. XXXXX installs equipment in the hotel that allows the hotel to broadcast a movie or video game to its guests using technology that accesses the video from cable or satellite. We have advised cable and satellite companies that similar charges to their customers are not taxable (pending the outcome of the telecommunications study). On that basis, we advised XXXXX that charges for in-room videos delivered in this manner were not taxable.

Thank you for bringing to our attention a statement in our Tourist Facilities publication that requires clarification. That publication states that charges for in-room movies are subject to sales tax. We believe that the publication didn't anticipate the changes in technology that allow different access to videos. We will clarify this issue with the Hotel and Motel Association and the Convention and visitor's Bureau. With regard to sales tax collected so far, we find as follows:

If a hotel or motel proprietor has collected sales tax on tax exempt video services, the tax must be remitted to the Tax Commission. If a particular customer requests a refund of that tax, the usual refund procedure applies.

For the Commission,

Alice Shearer

Commissioner