Which hotel, catering, and floral cancellation charges were taxable?

Subject

Cancellation Fees and Similar Charges

Plain-English summary

Florida's answer depended on what each payment purchased. A deposit that merely held a reservation until a specified arrival time was not taxable. A deposit that guaranteed the guest possession of a room for a specified stay was taxable even if the guest never arrived.

The submitted room-block attrition charges and liquidated damages were nontaxable penalties rather than transient rent. Complimentary rooms involved no taxable consideration. Retained deposits and cancellation fees for catering or floral events canceled before any tangible property sale were also nontaxable.

What this means for you

Contract terms matter more than the label “deposit” or “cancellation fee.” Also, tax separately collected became state funds and had to be remitted unless it was refunded to the customer and recovered through the proper credit or refund process.

Common questions

Q: Was every forfeited hotel deposit nontaxable? No. A guaranteed-stay deposit was taxable; a time-limited reservation hold was not.

Q: Were group attrition charges taxable? No, on the submitted penalty-style clauses.

Q: Were canceled catering and floral fees taxable? No, because cancellation occurred before a sale of tangible personal property.

Q: What if the provider collected tax on a nontaxable charge? The tax still had to be remitted or refunded and recovered through a credit or refund.

Citations and references

• Fla. Stat. § 212.02(15)(a) — sale
• Fla. Stat. § 212.03 — transient-accommodation tax
• Fla. Stat. § 212.15(1) — tax collected becomes state funds
• Fla. Admin. Code r. 12A-1.061(3)(f), (5), (18) — complimentary rooms, deposits, and collected tax
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 00A-015

Original ruling text

SUMMARY

QUESTION 1: Are forfeited deposits, contractual room block
attrition charges, and contractual liquidated damages
subject to sales and use tax?

ANSWER - Based on Facts Below: The taxability of a deposit
is contingent on whether the taxpayer merely holds a
reservation for a guest's arrival by a certain time, or
instead guarantees that an accommodation will be held
available to the guest during the length of the guest's
planned stay. The taxpayer's documents concerning guest
reservations do not appear to hold guaranteed
accommodations for the planned length of the guest's stay.
To the extent that no taxes are collected on or as part of
the deposit, no tax is due.

The room attrition charges and liquidated damages discussed
in the group guest agreement are in the nature of a
penalty, and not a charge for transient rentals. As such,
these charges are not subject to tax. To the extent that no
taxes are collected on or as part of the room attrition
charges and liquidated damages, no tax is due.

QUESTION 2: Are hotel accommodations provided for no
consideration subject to sales and use tax?

ANSWER - Based on Facts Below: Tax is only due on
consideration, or charges for the rental of transient
accommodations. If no consideration is charged or given
for the use of transient accommodations, no tax is due.

QUESTION 3: Are contractual liquidated damages
(cancellation fees) received for cancellation of catering
or similar services or floral services subject to sales and
use tax?

ANSWER - Based on Facts Below: Sales tax is generally
imposed on the sale of tangible personal property. In the
case of floral and catering events that are cancelled prior
to their scheduled occurrence, no sale of tangible personal

property occurs. Therefore, any retained deposits or
cancellation fees imposed do not represent the sale of
tangible personal property, and are, thus, not subject to
tax.

Mar 30, 2000

Re: Technical Assistance Advisement 00A-015
Sales and Use Tax - Cancellation Fees and Similar Charges
for Transient Rental Accommodations, Transient Rentals
Provided for No Consideration,
Cancellation Fees and Similar Charges for Catering and
Floral Sales
Sections 212.02, 212.03, 212.15, F.S.
Rule 12A-1.061, F.A.C.
Petitioner: XXX (herein "Taxpayer")
FEI: XX

Dear :

This letter is a response to your petition dated August 27,
1999, for the Department's issuance of a Technical Assistance
Advisement ("TAA") concerning the above referenced party and
matter. Your petition has been carefully examined and the
Department finds it to be in compliance with the requisite
criteria set forth in Chapter 12-11, F.A.C. This response to
your request constitutes a TAA and is issued to you under the
authority of s. 213.22, F.S.

REQUESTED ADVISEMENT

From your request:

[1. W]hether (and if so, to what extent) funds received as
forfeited deposits, contractual room block attrition
charges, and contractual liquidated damages received with
respect to unused hotel accommodation reservations are
subject to the sales tax imposed by F.S. s. 212.03[.]

[2. W]hether hotel accommodations provided for no
consideration are subject to the sales tax imposed by F.S.
s. 212.03[.]

[3. W]hether contractual liquidated damages (cancellation
fees) received for cancellation of catering or similar
services or floral services are subject to the sales tax
imposed by F.S. s. 212.05.

FACTS

From your request:

[Taxpayer] is a hotelier engaged in the rental of hotel
accommodations. It enters into reservation arrangements
with both individuals (a "Social Guest") and with groups (a
"Group Guest").

The following facts are those provided as salient with respect
to the requested advisement concerning funds received as
forfeited deposits, contractual room block attrition charges,
and contractual liquidated damages with respect to unused hotel
accommodation reservations:

Social Guest Arrangements

Social Guest reservations are typically made orally with
[Taxpayer] and later memorialized in printed confirmations.
The confirmation is the sole documentation provided to a
guest and provides the terms of the reservation.
Reservations generally must be accompanied by payment of a
deposit, which may be refundable in some circumstances, to
secure the guest's right to rent a room on a given date.
Once the reservation and deposit are accepted, [Taxpayer]
removes a room of the type reserved from its available
inventory list. [Taxpayer] generally will not attach the
guest's name to any specific room but guests sometimes
request specific rooms and their request is accommodated
when possible.

To compensate for estimated cancellations, [Taxpayer] often
"overbooks", that is, accepts reservations in excess of the
actual number of rooms in the hotel. In the event that
sufficient rooms are not available upon the guest's
arrival, [Taxpayer] "walks" the guest to another local
hotel and pays the guest's hotel rental.

... The standard confirmation states either that "the...
reservation is confirmed for arrival..." or that "your
reservation will be held for your arrival...." ... If the
guest does not arrive, the deposit is forfeited.
Additionally, if a guest cancels a reservation outside of
the permissible cancellation period, the deposit is
forfeited.

Group Guest Arrangements

[Taxpayer] accepts Group Guest reservations using its
Corporate Meeting Plan Arrangement (the "Group
Agreement").... The Group Agreement generally requires
payment of a nonrefundable deposit to reserve the room
block....

Once the Group Agreement is executed, [Taxpayer] removes
the types of rooms in the reserved room block as outlined
in the Group Agreement, from its available inventory list.
As with Social Guest reservations, guests' names within a
group are generally not attached to specific rooms and
overbooking may result in an attempt to mitigate room block
attrition [a group's under-utilization of a reserved room
block] and cancellations. The Group Agreement provides for
an allowable reduction in [the] group size without the
imposition of a room block attrition charge.

Once the room block size is finally determined, [Taxpayer]
holds the rooms until the group's arrival. If a group then
experiences room block attrition, the Group Agreement
imposes a room block attrition charge, which compensates
[Taxpayer] for the value of unused reservations plus other
related lost revenues. The room block attrition charge is
generally satisfied with an additional payment by the

group.

In the event that a group cancels its room block
reservation entirely, liquidated damages are imposed
depending on the date of the cancellation relative to the
date of arrival.... Liquidated damages are first paid with
any nonrefundable deposit [Taxpayer] has on account for the
group and then with additional payment.

The following facts are those provided as salient with respect
to the requested advisement concerning accommodations provided
for no consideration:

[Taxpayer] in its Group Agreement, provides complimentary
room nights to Group Guests depending upon the number of
fully paid room night rentals. The Group Agreement
typically provides one (1) complimentary room night for
every (50) fully paid room nights utilized. The type of
complimentary room provided may be upgraded according to
the schedule provided in the Group Agreement.
Additionally, [Taxpayer] may provide complimentary rooms to
its vendors, potential guests for site visits, and to
friends and family members of [Taxpayer's] employees.
[Taxpayer] does not collect consideration in connection
with the provision of any complimentary room. These
practices are consistent and typical in the hospitality
industry.

The following facts are those provided as salient with respect
to the requested advisement concerning deposits for catering and
similar services, and floral sales:

[Taxpayer] provides catering and similar services and
floral sales both on and off premises. Arrangements for
on-premises catering, off-premises catering, and floral
sales are made with... Letters of Agreement ("Service
Agreements").... The Service Agreements require the
customer to pay a nonrefundable deposit with execution of
the agreements. In the event the service is canceled,
depending on the time of cancellation, a cancellation fee
may be imposed. Any cancellation fee owing is reduced

first with the customer's deposit on account and then with
additional payment.

DISCUSSION, ANALYSIS, AND CONCLUSION OF LAW

Section 212.03(1), Florida Statutes, provides in pertinent part:

It is hereby declared to be the legislative intent that
every person is exercising a taxable privilege who engages
in the business of renting, leasing, letting, or granting a
license to use any living quarters or sleeping or
housekeeping accommodations in, from, or a part of, or in
connection with any hotel, apartment house, roominghouse,
or tourist or trailer camp.... For the exercise of such
taxable privilege, a tax is hereby levied in an amount
equal to 6 percent of and on the total rental charged for
such living quarters or sleeping or housekeeping
accommodations by the person charging or collecting the
rental. Such tax shall apply to hotels, apartment houses,
roominghouses, or tourist or trailer camps whether or not
there is in connection with any of the same any dining
rooms, cafes, or other places where meals or lunches are
sold or served to guests. (Emphasis Supplied)

Section 212.03(4), Florida Statutes, provides that no tax is
"imposed on rooms provided guests when there is no consideration
involved between the guest and the public lodging
establishment."

Section 212.15(1), Florida Statutes, provides in pertinent part:

The taxes imposed by this chapter shall, except [in an
instance not applicable hereto], become state funds at the
moment of collection and shall for each month be due to the
department on the first day of the succeeding month and be
delinquent on the 21st day of such month.... (Emphasis
Supplied)

Section 213.756, Florida Statutes, provides:

Funds collected from a purchaser under the representation

that they are taxes provided for under the state revenue
laws are state funds from the moment of collection and are
not subject to refund absent proof that such funds have
been refunded previously to the purchaser. (Emphasis
Supplied)

Rule 12A-1.061, Florida Administrative Code, provides in
pertinent part:

(3)(f) Owners or owners' representatives of transient
accommodations who provide transient accommodations to
guests or tenants for no consideration, as provided in
paragraph (a), are not required to collect tax from the
guest or tenant or pay tax on the value of the
accommodation.

(5) DEPOSITS AND PREPAYMENTS.
(a) The following deposits or prepayments paid by guests or
tenants to the owner or owner's representative of transient
accommodations are NOT rental charges or room rates and are
not subject to tax;

1.a. Deposits or prepayments that are required to be paid
to secure a potential guest or tenant the right to rent,
lease, let, or license a transient accommodation by a time
certain. Such deposits do not guarantee the transient guest
or tenant the use or possession, or the right to the use or
possession, of transient accommodations.

b. Example: A potential tenant reserves a beach house for a
specific week from a management company. The management
company requires a $100 reservation deposit to hold the
beach house until a time certain, such as 6:00 p.m., the
first night of the reserved week. The tenant is unable to
use the beach house for the reserved week, but fails to
cancel the reservation with the management company. The
management company retains the $100 deposit. Because the
$100 charge does not provide the tenant the right to the
use of the beach house, the $100 deposit is not subject to
tax.

c. Example: A potential guest makes reservations at a hotel
for a designated night. The hotel requires a deposit equal
to the room rate to hold a room until a time certain, such
as 6:00 p.m., on the designated night. The guest does not
arrive at the hotel and fails to cancel the reservation.
The hotel retains the deposit. Because payment of the
deposit did not provide the potential guest the right to
the use of the room and the hotel did not collect any tax
from the potential guest, the room deposit is not subject
to tax.

(b) Rental charges or room rates include deposits or
prepayments that guarantee the guest or tenant the use or
possession, or the right to the use or possession, of
transient accommodations during a specified rental period
under the provisions of an agreement with the owner or
owner's representative of transient accommodations. The
owner or owner's representative is required to provide
transient accommodations to any guest or tenant that enters
into such an agreement and pays the required prepayment or
deposit, even when the guest or tenant does not occupy the
accommodation.

1. Example: A potential tenant enters into an agreement
   with the owner of a condominium unit to reserve the unit
   for a specified week. In exchange for the required deposit,
   the tenant is guaranteed that the unit will be available
   for use during the specified week. The tenant is permitted
   to cancel the reservations and receive a full refund of the
   required deposit provided that the cancellation is received
   48 hours prior to the scheduled arrival date. The tenant
   makes the required prepayment by issuing a credit card
   authorization for the amount of the weekly rental charges.
   Even though the tenant is unable to use the unit during the
   specified week, the tenant fails to cancel the reservation.
   The condominium owner charges the tenant's credit card for
   the unit. The weekly rental [charge] paid by the tenant for
   the condominium unit is subject to tax, even though the
   tenant does not use the unit.

2. Example: A hotel guarantees that it will provide room

accommodations on a designated date to potential guests
that make reservations and pay a required room deposit. To
receive a refund of the required room deposit, the
potential guest must cancel his or her reservations by 4:00
p.m. of the designated date. A potential guest that has
made reservations and has paid the required room deposit
fails to cancel the reservations and fails to arrive at the
hotel on the designated date to use the reserved room
accommodations. Because the potential guest fails to cancel
the reservations, the guest forfeits the room deposit. Even
though the guest did not occupy a room at the hotel, the
forfeited room deposit is subject to tax....

(18) Any taxes collected from a guest or tenant must be
remitted to the proper taxing authority, regardless of how
the taxes are collected or recorded by the entity providing
the transient accommodations. (Emphasis Supplied)

Section 212.02(15)(a), Florida Statutes, defines "sale" in part
as:

Any transfer of title or possession, or both, exchange,
barter, license, lease, or rental, conditional or
otherwise, in any manner or by any means whatsoever, of
tangible personal property for a consideration.

Your first question posed concerns whether tax is due on
forfeited deposits, contractual room block attrition charges,
and contractual liquidated damages received with respect to
unused hotel accommodation reservations.

The taxability of a deposit is contingent on whether the
taxpayer merely holds a reservation for a guest's arrival by a
certain time, or instead guarantees that an accommodation will
be held available to the guest during the length of the guest's
planned stay.

The examples provided by the taxpayer concerning deposits taken
from the taxpayer's social guests provide that the reservation
is held for an arrival by a time and date certain. The examples
do not appear to hold guaranteed accommodations for the planned

length of the guest's stay. Therefore, the deposits are not
subject to tax. However, in one of the examples submitted with
the original request, the deposit collected was one night's
rental plus tax. Since tax becomes state funds at the moment
collected, the tax is due and must be remitted. See Section
212.15(1), F.S. The taxpayer does have the option of refunding
the tax to its customer, and in return receive a refund or
credit of those taxes paid. In the other example submitted with
the original request, no deposit was collected, and, therefore,
no tax is due. The taxpayer subsequently submitted another
example showing a deposit collected that specifically excluded
tax; and therefore, upon which no tax is due.

The example originally provided by the taxpayer, concerning
deposits taken from the taxpayer's group guests appears to
confirm the group's arrangements rather than guarantee
accommodations. As such, the deposit is not subject to tax.
However, like the social guest example originally submitted, the
deposits, include Florida sales tax. Since tax becomes state
funds at the moment collected, the tax is due and must be
remitted. See Section 212.15(1), F.S. Again, the taxpayer does
have the option of refunding the tax to its customer, and in
return receiving a refund or credit of those taxes paid. The
taxpayer subsequently submitted another example of the document
concerning the group guest arrangement. This example did not
appear to include tax in the deposit, and therefore, no tax is
due. To the extent that the taxpayer uses reservation
confirmations like the examples provided with this request, and
the taxpayer does not collect tax on the deposits from the
guests, no tax is due on such deposits.

The room attrition charges and liquidated damages discussed in
the group guest agreement are in the nature of a penalty, and
not a charge for transient rentals. As such, these charges are
not subject to tax. However, like the deposits, these charges
include Florida sales tax. Therefore, the tax must be remitted.
See Section 212.15(1), F.S. Again, the taxpayer does have the
option of refunding the tax to its customer, and in return
receiving a refund or credit of those taxes paid.

Your second question posed concerns whether tax is due on

transient accommodations provided to guests for no
consideration. Tax is only due on consideration, or charges for
the rental of transient accommodations. If no consideration is
charged or given for the use of transient accommodations, no tax
is due. See Section 212.03(4), F.S., and Rule 12A-1.061(3)(f),
F.A.C.

Your third question posed concerns the taxability of
nonrefundable deposits and cancellation fees related to
cancelled catering and floral sales. Sales tax is generally
imposed on the sale of tangible personal property. In the case
of floral and catering events that are cancelled prior to their
scheduled occurrence, no sale of tangible personal property
occurs. Therefore, any retained deposits or cancellation fees
imposed do not represent the sale of tangible personal property,
and are, thus, not subject to tax.

This response constitutes a Technical Assistance Advisement
under Section 213.22, F.S., which is binding on the department
only under the facts and circumstances described in the request
for this advice, as specified in Section 213.22, F.S. Our
response is predicated upon those facts and the specific
situation summarized above. You are advised that subsequent
statutory or administrative rule changes or judicial
interpretations of the statutes or rules upon which this advice
is based may subject similar future transactions to a different
treatment from that which is expressed in this response.

You are further advised that this response, your request and
related backup documents are public records under Chapter 119,
F.S., and are subject to disclosure to the public under the
conditions of s. 213.22, F.S. Confidential information must be
deleted before public disclosure. In an effort to protect
confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,
the backup material and this response, deleting names, addresses
and any other details which might lead to identification of the
taxpayer. Your response should be received by the Department
within 15 days of the date of this letter.

Sincerely,

Sara D. Faulkenberry
Tax Law Specialist
Technical Assistance and Dispute Resolution
850/414-9838

Control #38749