When a hotel charges guests a fee for in-room pay-per-view movies supplied through a video company's equipment, who collects Kansas sales tax and who pays tax on the equipment?

Plain-English summary

A Kansas hotel contracted with a video company to install equipment that provides in-room movies. Guests pay the hotel an additional fee to view a particular movie; the fee is paid by the room guest to the hotel. The hotel asked how Kansas sales tax applies.

The hotel collects sales tax on the movie fees. The Department pointed to K.A.R. 92-19-24(e): "Each hotel may purchase exempt from sales tax, premium cable television service channels which are separately billed to the consumer. Each hotel shall collect sales tax for the cable television services billed by the hotel to the consumer." Applying that rule, the Department's opinion was that "the hotel should impose and remit Kansas state and local retailers' sales tax on the gross receipt of these sales," with the local tax being "that local tax in effect at the location of the hotel."

The company-to-hotel charge is not taxed; the equipment is. The Department added that "the charges from the video company to the hotel would not be subject to tax," and that "the video company should pay Kansas sales or compensating tax on the cost of their equipment."

Bottom line: the hotel is the retailer of the movie to the guest and must collect Kansas state and local sales tax on the guest's fee. The video company's wholesale-style charge to the hotel is not taxed, but the video company is the consumer of the movie equipment it installs and owes sales or compensating tax on that equipment.

What this means for you

The hotel is the retailer to the guest

Because the guest pays the hotel and the hotel bills the service to the consumer, the hotel collects and remits the tax — the same way K.A.R. 92-19-24(e) makes a hotel collect tax on cable television services it bills to guests. The hotel applies both the state rate and the local rate in effect at the hotel's location.

Business-to-business charge is not the taxable sale

The video company's charge to the hotel is not itself taxed. The taxable retail sale is the hotel's charge to the guest. This avoids double taxation of the same service.

The video company pays tax on its own equipment

The equipment the video company installs to deliver the movies is consumed by the video company in providing the service. It owes Kansas sales tax (if bought from a Kansas vendor) or compensating use tax (if bought out of state) on the cost of that equipment.

Use the local rate at the hotel

Local sales tax follows the hotel's location. A multi-property operator should apply each hotel's own combined state-and-local rate to that hotel's in-room movie receipts.

Common questions

Does the hotel charge guests sales tax on the movie fee?
Yes. The hotel must impose and remit Kansas state and local retailers' sales tax on the gross receipts from the in-room movie fees it bills to guests.

Which local rate applies?
The local tax in effect at the location of the hotel.

Is the video company's charge to the hotel taxable?
No. The Department said the charges from the video company to the hotel are not subject to tax; the taxable sale is the hotel's charge to the guest.

Who pays tax on the movie equipment?
The video company. It should pay Kansas sales or compensating tax on the cost of its equipment because it is the consumer of that equipment.

Citations and references

• K.A.R. 92-19-24(e) — allows a hotel to buy separately billed premium cable television service channels exempt from sales tax, and requires the hotel to collect sales tax on cable television services it bills to the consumer; the Department applied this rule to in-room movie fees.
• K.A.R. 92-19-59 — authorizes Kansas private letter rulings; this ruling binds the Department only as to the requesting taxpayer and the facts presented.
• Issued November 4, 1998 by Mark D. Ciardullo, Tax Specialist, Office of Policy & Research, Kansas Department of Revenue.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1998-181

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

November 4, 1998

XXXXXXXXXX
XXXXXXXXXXXX
XXXXXXXXXXX

Dear XXXXXXXX:

The purpose of this letter is to respond to your letter dated October 21, 1998.

You seek a private letter ruling based on the following facts. You operate a hotel in Kansas. The hotel has entered into a contract with a video company. The contract specifies that the video company install their equipment at your hotel to provide in room movies to hotel guests. The guests will pay an additional fee to view a particular movie. The fee will be paid by the room guest to the hotel.

Per Kansas Administrative Regulation 92-19-24(e), “Each hotel may purchase exempt from sales tax, premium cable television service channels which are separately billed to the consumer. Each hotel shall collect sales tax for the cable television services billed by the hotel to the consumer.”

It is the opinion of the Kansas Department of Revenue that the hotel should impose and remit Kansas state and local retailers’ sales tax on the gross receipt of these sales. The local retailers’ sales tax would that local tax in effect at the location of the hotel. The charges from the video company to the hotel would not be subject to tax. The video company should pay Kansas sales or compensating tax on the cost of their equipment.

This is a private letter ruling pursuant to Kansas Administrative Regulation 92-19-59. It is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to an accurate determination by the department, this ruling is null and void. This private letter ruling will be revoked in the future by operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or a published revenue ruling, that materially affects this ruling.

Sincerely,

Mark D. Ciardullo
Tax Specialist

MDC

Date Composed: 11/06/1998 Date Modified: 10/10/2001

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