IPT 2015 Sales Tax Symposium Indian Wells, California. The Hotel Industry: Checking In

Transcription

1 IPT 2015 Sales Tax Symposium Indian Wells, California The Hotel Industry: Checking In

2 Presenters Daniel P. Kelly, Esq. Hodgson Russ LLP Buffalo / New York, NY & Palm Beach, FL dpkelly@hodgsonruss.com (716) D. Mitchell Morton, CMI, CPA Senior Manager, Tax Audit, Hilton Worldwide Memphis, TN Mitch.Morton@Hilton.com (901)

3 Learning Objectives Develop an overview of the hotel industry Identify developments and issues found in recent legislation, rulings/case law, & audits Identify best practices for dealing with industry issues, special taxes, & tax resources Discuss states aggressive tax positions 3

4 The Hotel Industry Some Quick Stats 4 Statistics sources: American Hotel & Lodging Association & The U.S. Bureau of Labor Statistics

5 Quick Stats on U.S. Hotel Industry, cont. 5 52,887 properties in ,926,543 guestrooms in 2013 $163,000,000,000 in 2013 sales (!) Average room rate was $ in 2013 Hotel industry employs 15.1M (June 2015) Summary: The hotel industry is vastly important to our economy, and also to state and local government revenue streams

6 Presentation Overview 1. Hotels: What & Who Get Taxed? 2. Hotel Industry Issues & Hot Topics 3. Handling Hotel Audits Best Practices 4. Room Remarketers & Airbnb Update 6 5. NY Publication 848 & Final Notes

7 1. Hotels What & Who Get Taxed? 7 Guests/Hotels/Operators: Sales & use taxes Occupancy/bed taxes Tourist development/various local taxes Per night/room fees Management Companies/Hotels/Operators Management fees? Rewards Entities & Programs Rewards reimbursements?

8 Guests/Hotels/Operators 8 Sales tax on room charge/rental that s easy Occupancy taxes Several different occupancy taxes, often tracing the sales tax rules Other local taxes Sometimes ad hoc, significant source of local revenue w/ occupancy/bed taxes be careful messing with it! Per-night room fees What constitutes a room? Is it $2, or $4 /night?

9 Guest/Hotels/Operators Telecom Taxes (Communication Services) Liquor Taxes Meals Taxes Business Licenses 9

10 Management Companies/Operators 10

11 Are management fees taxable? 11 Management fees Issues with employees on the brand s/management company s payroll, performing services for hotel owner. Do the services include maintenance or cleaning services? Other taxable services? Taxability of specific services, and services in general, varies by jurisdiction Watch out for the Cheeseboard Rule. It s not fun.

12 Temporary Employees vs. Taxable Service Housekeeping (cleaning of real property) Security Food & Beverage 12

13 Royalties and Franchise Fees Taxation of Royalties and Franchise Fees Hawaii New Mexico South Dakota Washington B&O Local Jurisdictions 13

14 Solutions What is the purpose of the service? What s the primary function of the service offered by the management company? Is the hotel actually the employer? PEOs could be the fix Professional Employer Organizations 14 NY s PEO statute: Worksite employees whose services are subject to sales tax shall be deemed the employees of the client for purposes of collecting and levying sales tax on the services performed by the worksite employee.

15 Rewards Entities & Programs Mitch & his wife, circa 1992, enjoying the HHonors program: 15

16 Rewards Issues Overview Matter of Marriott International, Inc. et al., New York Tax Appeals Tribunal (Jan. 2010) Hodgson Russ s very own Mark Klein & Tim Noonan, holding it down Are rewards reimbursements subject to sales taxes, occupancy taxes? Mixed approach, do the sales tax & occupancy tax laws follow each other within a state? Do state advisories cover both taxes? 16

17 Rewards Reimbursements, cont. States have mixed approaches to what is, and isn t, a taxable reimbursement Compare NY & FL: NY none of the reimbursement is subject to sales tax. FL reimbursements to a hotel that exceed the amount paid into the rewards fund by that hotel during the reimbursement period are taxable Refunds Strategies vary on a state-by-state basis. Compare NY, FL & IL 17

18 2. Hotel Industry Issues & Hot Topics Besides unruly and flat-out dangerous guests, that is 18 Johnny Depp in Fear and Loathing in Las Vegas

19 Capital Improvements Maintenance, repair & other services are sometimes taxable. However, when the services qualify as a capital improvement, in NY like other places, the service isn t taxable. 19

20 What Constitutes a Capital Improvement? 20 In NY: Work to RP that adds value; Results in an installation that, if removed, would cause damage to RP; and It s intended to be a permanent installation Auditors have field days with these tests

21 Other Issues With Renovations Characterizing charges from vendors, and accruing use tax when necessary. New York s Pilot Program to streamline the capital improvement question, including a working matrix developed from auditor site visits. Stories from the front lines 21

22 Solutions States that settle on a taxable % -- NY heading in this direction after collaboration Keep an eye language in contracts and invoices Proposed (but not passed) NY legislation: Capital Improvement only if complete replacement (i.e., new build, new addition) 22

23 Furnished Apartments Are They Taxed like a Hotel? Did the butler do it? In the parlor? Hint: Was there even a butler is an important question. 23 Simon Jarratt/Corbis,

24 Furnished Apartments, cont. 24 New York advisory opinions uphold nontaxability of furnished rental apartments, Generally for 30-days or more & lacking normal hotel services and demonstrating landlordtenant relationships. Audits are still occurring in this area. Be very careful about how these are marketed and pay attention to agreements. Look-out for NYC rules. They treat furnished apartments as hotels!

25 3. Handling Hotel Audits Best Practices Where are hotels most suspect to liability? Answer the questions asked. Get requests for information in writing. Consider where to hold the initial audit meeting, and who will be in attendance. Requests for extending the period of limitations 25

26 Handling Hotel Audits, Cont. 26 Obtain and organize common supporting documentation ahead of time: Exemption certificates and forms Auditors often find minor issues in these audits, resulting in small adjustments. Refunds aren t unheard of, either. Employees should be trained on the relevant state exemption forms, and why it s important to get these documents up-front. Even the best companies and hotels find exposure here on audit. Capital & expense purchase invoices Sales tax returns

27 Handling Hotel Audits, Cont. Anticipate auditor s questions & area of review Have a plan to get detail information Know who to go to in the organization for answers Quantify possible issues Research & Network 27

28 Handling Hotel Audits, Cont. Push back on Crazy positions by Auditor Get Auditor s Supervisor involved Don t be afraid to go to hearings Know good Tax Attorneys 28

29 4. Online Travel Agencies (OTAs) & Room Remarketers Update 29 Room remarketers are taxable as hotel operators in NY (and other places), required to collect sales tax on charges to customers for hotel occupancy What amount does the room remarketer charge sales (and occupancy) taxes on? NY sales tax: The full amount charged, including any service or other charge or amount paid as a condition of occupancy

30 Airbnb What s Going On? Recent round of funding would value Airbnb at $20bn 30

31 Airbnb, cont. Fighti with NYS Attorney General about subpoena for information on hosts. This is likely more of a local law/under30-day rental issue than a tax issue. Airbnb claims that it wants to collect state and local hotel taxes, but that New York law prohibit it. What s going on elsewhere? Varies depending on location who is required to collect/remit the taxes? 31

32 5. New York Publication 848 New in February 2015 A Guide to Sales tax for Hotel and Motel Operators 32

33 THANK YOU FOR ATTENDING Mitch suggested that we offer each of you 70,000 HHonors points for attending today s presentation. I told him that seemed like too much, so instead, we ll stick around up here afterwards to answer questions. 33