99-012

Response May 12, 1999

 

 

REQUEST LETTER

 

October 8, 1998

 

Re: Request for Sales and Use tax ruling

 

Dear Tax and Revenue Officer:

 

COMPANY requests updated rulings on our business services. We are making this request due to the traffic that has lapsed since receiving the prior ruling and because of an expansion motif service offerings. Please advise whether the following services are subject to Sales and/or Use Tax and, if so, who is responsible for remitting the tax to the state (COMPANY or the Hotel).

 

 

Pay Per View

COMPANY provides to the hotel=s guests a pay-per-view 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) or Digital File Servers, a computer and other electronic equipment The hotel provides space for the installation of the PPV system, which is owned, installed and maintained by COMPANY , and is solely under the control of COMPANY .

 

The guest selects a movie from a menu of available titles appearing on the television screen. When the guest selects a video program 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 (Video Now) rather than by remote control.

 

The agreement between COMPANY and the operator of the hotel provides that, based upon daily information reported by the monitoring unit on the PPV System, the hotel, on behalf of COMPANY , is to place a specified charge on the guest=s hotel bill for each movie viewed. The hotel retains a specified percentage of each charge (commission) less any adjustments (denials) and remits the remainder to COMPANY monthly.

 

Free to Guest Service

COMPANY may provide various channels of television programming (e.g., ESPN, TBS, USA, HBO, and CNN) that are delivered to the hotel by satellite or cable and are provided free to the hotel guests. The hotel generally pays a specified monthly rate per room for this service.

 

Video Game Service

COMPANY may provide a selection of video games for use by the hotel guests. The games would be accessed via a game controller in the hotel room arid provided in a manner similar to the PPV Service, except that CD-ROM game players are used as the source of the games.

 

Internet Service

COMPANY may provide two kinds of Internet Services:

 

1. TV - Centric Internet Access

Guest in the room selects Internet access using a remote control, launching a TN based Internet browser (common to WebTV). The guest is connected to the Internet at high speeds, and uses a wireless infrared keyboard. The actual PC being used by the guest is located in the control unit rack, not in the guest room. Communication between the guest and the control unit rack is provided via the same wire as the PPV video services. Billing may be per day, per minute, per hour, or any other time period.

 

2. Laptop connectivity

Provides high-speed Internet connectivity to guests with laptop PCS. The laptop is connected to a port in the room and the guest is automatically connected to the highspeed network. The guest uses his or her own Internet browser. Billing is based on time periods (as above).

 

Special Events Service

COMPANY may in the future provide live, time delayed. simulcast or rebroadcast of special PPV events (e.g.. sports, wrestling, concerts). These events would be delivered live via satellite or replayed using our PPV System.

 

Sincerely.

NAME

TITLE

 

 

RESPONSE LETTER

 

May 12, 1999

 

 

COMPANY

ADDRESS

RE: Taxation of Pay-Per-View and Internet Services Provided to Hotel Guests by COMPANY

 

Dear NAME,

We have received your request for an advisory opinion that will update a previous advisory opinion issued to you, specifically Utah State Tax Commission Advisory Opinion No. 96-010DJ (AAdvisory Opinion 96-010DJ@). The new request presents the identical issues COMPANY presented in Advisory Opinion 96-010DJ, except that the new request also requests opinions on the taxability of AInternet Services@ and ASpecial Events Services@ provided to hotel guests. Some of the opinions expressed in Advisory Opinion 96-010DJ have changed since its May 24, 1996, issuance, which will be explained below.

 

Movies or Video Games Ordered by Guests. In Advisory Opinion 96-010DJ, we stated that whether the charge to view a movie or play a video game in a guest=s room is taxable depends upon the manner in which the movie or video game is delivered to the guest=s room. We have since reconsidered this Commission policy that resulted in the taxation of some guest charges for movies and video games, but the nontaxation of others. Utah Code Ann. 59-2-103(1)(f) imposes a sales tax on the admission or user fees for various activities, including movies, shows of any type, closed circuit television broadcasts, or any other amusement, entertainment, recreation, exhibition, cultural, or athletic activity. We now consider that any fee that a hotel charges a guest for a movie or video game is a user fee for that entertainment activity. Accordingly, that user fee is subject to sales tax regardless of the manner in which the movie or video game is delivered to the guest=s room.

 

Free to Guest Services. You state that various channels of television programming are delivered to the hotel by satellite or cable. The hotel is charged a specific monthly rate per room for this service. Only certain specified services are subject to Utah sales tax. There is no sales tax on subscriber charges for cable or satellite television transmissions. See Rule R865-19S-91. Thus, charges for cable service are not subject to sales tax when they are delivered to the hotel by cable or satellite transmission. Most cable or satellite transmissions are interstate transmissions, and Utah law does not permit the taxation of interstate transmissions.

 

You describe a situation where the guest is not charged for access to the cable or satellite transmission. However, should a guest be charged to have access to the television programming, that charge is taxable as a Section 59-12-103(1)(f) user fee for entertainment activities, akin to closed circuit television fees, whether that programming originates from cable or satellite transmissions or by some other means.

 

Internet Services. You indicate that you will provide two kinds of Internet service for guests. One kind has the guest using a remote control unit in his or her room to connect to the Internet through a personal computer located in the rack system provided by COMPANY . The second method would be to provide a port in the room to which the guest can connect his or her own laptop computer. While this port would provide access to the Internet, the guest could use his or her own Internet browser once connected. In either case, you are providing the guest with Internet access. Charges for on-line access to the Internet are not currently taxable.

 

Special Events Services. COMPANY may in the future provide broadcasts of special events, such as sporting events or concerts. These broadcasts would be delivered to the guest=s room either live via satellite or replayed using the rack system that is located in the hotel. These broadcasts of special events would be treated for tax purposes in the same manner as any other pay-per-view movie or video game. Accordingly, charges for these broadcasts would be considered user fees for entertainment activities and, thus, be subject to sales tax.

 

Collecting and Remitting Sales Tax. Information provided for Advisory Opinion 96-010DJ indicated that COMPANY 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 COMPANY and the hotel is not a taxable event. However, as noted above, the transaction between COMPANY and the room guest is taxable as an admission or user fee. The hotel, as COMPANY =s agent, must collect sales tax on this charge. In this situation, COMPANY is considered the final consumer of all personal property used to deliver the taxable service. Thus, COMPANY should pay sales tax on its own purchases of video players, video tapes, and other similar personal property.

 

Utah also imposes sales tax on charges for the rental or lease of tangible personal property. If a hotel rents videos and video playing and broadcasting equipment from COMPANY , the hotel is required to pay sales tax on the rental charges associated with the playback and broadcast equipment and the video tapes. Those taxes should be collected by COMPANY , but may be passed through to the hotel. The hotel is considered the final consumer of those items.[1]

 

As the vendor, COMPANY is ultimately responsible for filing a return and 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 remit the tax and file the returns, COMPANY will be required to do so and may also be responsible for any penalties and interest, regardless of any contract to the contrary. In other words, COMPANY may not contract away its statutory duties as a vendor.

 

We recognize that some of these policies have changed since your last request letter was answered. The Commission is currently taking steps to alert the hotel industry of these changes. While these changes are effective now, we will not require compliance with these changes until October 1, 1999, in order to allow the industry sufficient time to make any necessary collection and reporting adjustments. Please contact us if you have any other questions.

For the Commission,

R. Bruce Johnson

Commissioner

 

 

 

 

 


[1] If the hotel charged its guest to rent the video, where the guest receives actual physical possession of the video, the guest would be considered the final taxable consumer. In that case, the hotel could rent the videos tax free from COMPANY under the resale exemption, but it would be required to collect the sales tax from its guest. We do not understand this to be your practice.