Sales tax, HOT tax, mixed beverage tax

Determining which taxes apply to a particular hotel charge becomes confusing very quickly. Sales tax, hotel tax, and mixed beverage tax can all appear on the same invoice, and both hotel operators and hotel guests frequently contact THLA with questions about how to figure out which tax applies to what item. Here are just a few examples of recent questions:

• Is a banquet service fee subject to sales tax?
• What about the rental of the banquet room itself?
• Is there hotel tax on a pet cleaning fee?  Does tax apply to a charge for a rollaway bed?
• Just how do we figure out which taxes apply to a package deal?
• Do hotel occupancy taxes apply to no-show charged or attrition fees?
• Breakfast/other meal charges?

THLA is here to help.  Texas Hotel & Lodging Association has an easy-to-use chart that covers virtually every type of charge a hotel might charge a guest, and information about which tax (if any) applies. 

Click here to go to the chart

And what about the answers to those questions above?

Baquet service fees or mandatory gratuities: 

A portion of the banquet service charges or mandatory gratuities might be subject to sales tax, but this depends on the amount of the charge and where the revenue goes.

If the service charge is 20% or less, the portion of the charge that is NOT distributed as a gratuity to employees who are customarily tipped is usually subject to sales tax.

If the service charge is more than 20%, the entire charge is usually subject to sales tax, no matter how it may be distributed to employees.

Banquet room rental charges: 

Banquet room rental charges are subject to the state 6% hotel occupancy tax if the banquet room is located in the same building that also contains sleeping rooms.

Local hotel occupancy taxes do not apply.

If the banquet room is not located in the same building that contains sleeping rooms, no taxes at all apply to the rental charge if no taxable services are items are provided in connection with the room rental.  However, if a taxable service or item is sold or provided in connection with the room rental, sales taxes apply to the entire charge.

 

Pet cleaning fees: 

Pet cleaning fees, or the charge for having a pet, are subject to state and local hotel occupancy tax.  The theory is that these fees are related to a guest’s occupancy of the room, or readying the room for occupancy.

Rollaway bed fees: 

Same answer as pet cleaning fees; subject to state and local hotel occupancy tax.  These charges are related to a guest’s occupancy of a hotel room.

Package deals: 

The tax status of package deals depends on how the charges appear on a guest’s invoice.

If the charges are lump-sum billed, and guest’s invoice does not break down the cost of the individual items in the package, the entire charge (lump-sum) will be subject to state and local hotel occupancy taxes if the package includes lodging; or the entire charge will be subject to sales tax if lodging is not part of the package.

If the items in the package are separately priced on the guest’s invoice, each charge stands on its own for tax purposes (e.g. the lodging costs will be subject to hotel taxes, the tour costs will be subject to sales tax, etc.).

No show or attrition charges: 

Fees and charges associated with a guest no-show, or an attrition fee for failing to meet the terms of a group contract, may be subject to hotel occupancy taxes, depending on when the charge is assessed and the amount of the charge.

If the charge is for at least the cost of a full night’s occupancy, and the charge is assessed within 30 days of the guest’s scheduled stay, the charge is subject to state and local hotel occupancy taxes.

If the charge is for less than a full night’s occupancy (e.g. 50% of the cost of lodging), or if the charge is assessed more than 30 days before the reservation begins, the charge is not taxable.  Typically, group contract attrition charges are less than a full night’s stay, and are not subject to taxes.

Breakfast/other meal charges: 

Breakfast and other meal charges that are available for purchase by the guest will be subject to sales taxes if the breakfast/meal charges are separately charged on the guest folio.

If the breakfast/meals are included in the price of the room, then only hotel occupancy taxes apply. Notably, hotels are responsible for paying sales taxes on items that the hotel purchases and provides to guests complimentary as part of their stay, including free breakfast items.

If you still have questions, do not hesitate to contact THLA’s legal department.  We are always happy to assist you in determining what taxes apply to your situation. Call us anytime at 512-474-2996 or email your question.