Can a pay-per-view movie company take over the hotel's responsibility to collect and pay the sales tax on in-room movie charges?

Plain-English summary

Spectradyne, Inc. runs closed-circuit pay-per-view movies for hotel guests ("Spectravision"): it supplies, installs, and maintains the equipment, guests push a "pay" button to buy a film, and under the parties' agreement the hotel bills the guests, keeps a 10% fee, and pays Spectradyne the balance plus the tax collected. Spectradyne argued it is the real seller (with the hotel as its agent) and should be able to assume the hotel's liability to remit the sales tax.

The Department held the hotel — not Spectradyne — is responsible for the tax.

• In-room movies are taxable hotel occupancy. Section 1105(e) taxes the rent for hotel occupancy, and 20 NYCRR 527.9(i)(1)(ii) provides that "charges for in-room use of movies are taxable charges for occupancy." The full amount charged to each guest is taxable.
• The hotel collects and remits. Because each hotel controls how its guests use the rooms and the collection and payment of guest charges, the hotel is responsible for the tax. Spectradyne is not a "hotel" (527.9(b)(1)), so it cannot take on that responsibility — it is the hotel's alone.
• No taxable equipment rental to the hotel. Under 526.7(e)(4), a rental requires a transfer of possession (custody, the right to possession, or the right to use/control). Spectradyne's equipment sits on hotel premises but stays Spectradyne's property in a locked cabinet, with possession not transferred to the hotel — so there is no taxable rental to the hotel.
• But Spectradyne owes use tax on its own equipment. Spectradyne is subject to tax on its equipment when used in New York to provide the Spectravision service.

What this means for you

In-room movie charges ride with the room — they're taxable occupancy. Whatever the billing arrangement, a guest's pay-per-view charge is part of taxable hotel rent, and the full amount is taxed.

The hotel is the collector, and that can't be contracted away. Sales tax collection responsibility follows the party that operates the hotel and controls guest charges. A vendor supplying the movies can't step into the hotel's shoes for tax purposes, even by agreement calling the hotel its "agent."

Owning equipment on someone else's premises isn't a rental — but it is a taxable use. If you keep control of your gear (here, locked away, never handed over), you aren't renting it to the site. You are, however, using it in New York, so you owe use tax on that equipment.

Common questions

Q: We supply the in-room movie system. Can we remit the sales tax instead of the hotel?
A: No. In-room movie charges are taxable hotel occupancy, and the hotel — which controls the rooms and guest billing — is solely responsible for collecting and remitting the tax.

Q: Is our equipment in the hotel a taxable rental to the hotel?
A: No, if you keep possession and control (for example, locked and never transferred). But you owe use tax on that equipment for its use in New York.

Q: Does the hotel's 10% fee change who's liable for the movie tax?
A: No. The movie charge is taxable occupancy the hotel collects on; the fee arrangement between the parties doesn't shift the collection duty.

Citations and references

Statute and regulations:

• Tax Law § 1105(e) — taxes the rent for hotel occupancy
• 20 NYCRR 527.9(i)(1)(ii) — charges for in-room use of movies are taxable occupancy charges
• 20 NYCRR 527.9(b)(1) — defines "hotel"
• 20 NYCRR 526.7(e)(4) — what constitutes a transfer of possession for a rental

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1987.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a87_22s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-87(22)S
Sales Tax
May 22, 1987

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S860106B

On January 6, 1986, a Petition for Advisory Opinion was received from Spectradyne, Inc.,
1501 North Plano Road, Richardson, TX 75083-0775.
Petitioner inquires whether it may assume the liability of a hotel operator to pay over to the
Tax Commission taxes collected on charges for showing movies on guest room television.
Petitioner is engaged in the business of telecasting, in closed circuit, movies and other
programs to hotel guests on a pay-per-view basis by means of equipment it supplies, installs and
maintains at the hotel premises. Guests may select a film by pushing a "pay" button on their
television sets. Petitioner contends that it is the seller, through its agent (the hotel), of the
Spectravision televiewing service (Spectravision) and should therefore be responsible for the
remittance of sales taxes collected from the guests.
To set up a system, Petitioner and the hotel enter into a Spectravision Guest-Pay Agreement
(Agreement) whereby each party contributes certain property, equipment and services to the
operation. The following parts of the Agreement are relevant to the Petition:
1.(a) At least four movies shall be made available for viewing by guests each day.
(c) The hotel shall have the option to decline certain telecasts.
2.(a) The hotel shall bill guests on a daily basis.
(b) The "Gross Viewing Receipts" for any period shall mean the viewing charges
collected by Hotel from the Hotel guests during such period less the amount of taxes, if any,
charged to the Hotel guests for viewing Spectravision.
(c) In addition to the viewing charge, Hotel agrees to collect from guests any
applicable taxes levied on viewings.
(d) In consideration of all of the rights granted to Spectradyne, Hotel shall be
entitled to a monthly fee equal to ten percent (10%) of the Gross Viewing Receipts for that
month.
(e) On the first work day of each month, Hotel shall furnish Spectradyne with an
accounting of the total Gross Viewing Receipts for the preceding calendar month.
Spectradyne will then issue a statement to Hotel for the Gross Viewing Receipts and for sales
tax collected on the Gross Viewing Receipts, less the ten-percent-of-Gross-Viewing-Receipts
hotel fee. That statement is payable no later than the fifteenth of the month following the
month reported.
RODERICK G. W. CHU, COMMISSIONER
GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR
TP-8 (3/83)

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TSB-A-87(22)S
Sales Tax
May 22, 1987

4.(d) Spectradyne shall install at the Hotel Premises room units, transmission and
monitoring equipment, and all other equipment necessary to provide Spectravision movies
in guest rooms.
6.(a) Spectradyne shall maintain the Spectravision Equipment in satisfactory
operational condition and make all necessary repairs and replacements.
8.(a) The equipment affixed to the hotel premises shall remain the property of
Spectradyne.
(b) Hotel agrees that the movies provided over Spectravision and the tape cassettes
provided under this agreement remain the property of Spectradyne.
Additionally, Petitioner asserts that: (1) the amounts collected by each hotel from hotel
customers is collected by the hotel as agent for Petitioner; (2) the 10% fee retained by each hotel
represents a charge for the right of Petitioner to install Spectravision in the hotel and for the hotel's
services as agent of Petitioner; (3) at no time does Petitioner relinquish dominion and control of
Spectravision equipment to the hotel; (4) at all times, Petitioner's Spectravision equipment is kept
in a locked cabinet to prevent access by hotel employees; and (5) Petitioner bears the risk of loss
resulting from the failure of hotel customers to pay amounts due for the viewing of Spectravision.
Section 1105(e) of the Tax Law imposes sales and use tax upon the "rent for every occupancy
of a room or rooms in a hotel in this state...." Regulation section 527.9(i)(1)(ii) specifically provides
that "charges for in-room use of movies are taxable charges for occupancy."
Accordingly, receipts from the sale of in-room movies such as Spectravision are taxable as
charges for hotel occupancy. The total amount charged to each hotel customer is subject to tax.
Since each hotel controls the manner in which its guests may use the rooms and the collection and
payment of charges made by such guests, each hotel is responsible for the collection and payment
of sales tax on any charges made by its guests.
Inasmuch as Petitioner is not a hotel within the definition contained in regulation section
527.9(b)(1), it is not responsible for collection of the tax on occupancy from hotel customers. That
responsibility is the hotel's alone.
Furthermore, section 526.7(e)(4) of the sales tax regulations describes the conditions
necessary for a rental of tangible personal property.
(4) Transfer of possession with respect to a rental, lease or license to use,
means that one of the following attributes of property ownership has been transferred:

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TSB-A-87(22)S
Sales Tax
May 22, 1987

(i) custody or possession of the tangible personal property, actual or
constructive;
(ii) the right to custody or possession of the tangible personal property;
(iii) the right to use, or control or direct the use of, tangible personal property.
Although Petitioner's equipment is located on the hotel premises, Petitioner does not transfer
possession of its equipment to the hotel. Thus, Petitioner is not making a taxable rental of equipment
to the hotel.
Finally, it should be noted that Petitioner would be subject to tax on its equipment when used
in this state to provide Spectravision service.

DATED: May 22, 1987

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.