Is a hotel's separately billed 'booking agent' fee part of the taxable hotel room rent, even when a foreign travel agent pays the room charge and fee separately?

Plain-English summary

A foreign-based travel agent sells vacation "tour packages" (airfare, hotel, bus service, etc. for one lump sum) to foreign tourists visiting New York. A large New York hotel set up a separate legal entity to act as its booking agent, negotiating discounted room rates for bulk or off-peak bookings on the hotel's behalf. The booking agent typically charges the travel agent a fee of about 20% of the room rate (never more than 25%), billed separately from the hotel's own room charge, and also throws in free travel brochures. Using the booking agent is optional, but doing so usually still nets the travel agent a lower total cost than booking directly at the hotel's normal rate. KPMG asked, on the travel agent's behalf, whether the booking agent's fee is subject to New York's hotel occupancy tax.

New York taxes "rent" for hotel occupancy, defined broadly as the consideration received for occupancy, however it's paid. Because the booking agent operates on the hotel's behalf (holding itself out as having rooms available), the travel agent is considered to be contracting for the room through the booking agency -- similar to how a bed-and-breakfast registry's referral fee is treated as part of the taxable rent, not a separate nontaxable service. Since a room in this hotel can't actually be rented through the booking agent unless both the negotiated room charge and the booking fee are paid, the whole combined amount -- not just the hotel's own charge -- counts as the "rent" subject to tax. Splitting the room charge and the booking fee onto two separate invoices doesn't change that; the entire amount the travel agent pays to actually secure the room is taxable.

What this means for you

Hotels setting up separate booking-agent entities to negotiate bulk or off-peak rates

Structuring the booking fee through a separate legal entity, or billing it on a separate invoice from the room charge, doesn't remove it from the tax base -- if a guest can't actually occupy the room without paying both charges, the combined total is taxable rent.

Travel agents and tour operators booking blocks of hotel rooms through negotiating intermediaries

Budget for sales tax on the full amount you pay to secure rooms -- both the hotel's quoted rate and any separately billed booking or negotiation fee -- not just the hotel's own invoice.

Accountants and tax professionals

This ruling directly extends the bed-and-breakfast-registry fee rule from TSB-M-92(7)S to a hotel-created booking-agent structure -- useful any time a client's lodging arrangement routes part of the charge through a separate negotiating or booking entity.

Common questions

Q: Does separately invoicing a hotel booking fee keep it out of the sales tax base?
A: No -- if the fee is required to actually secure occupancy of the room, it's part of the taxable rent regardless of how it's invoiced.

Q: Is this the same rule that applies to bed-and-breakfast referral or registry fees?
A: Yes -- the Department applied the same principle from its bed-and-breakfast registry guidance (TSB-M-92(7)S) to this hotel-created booking-agent structure.

Q: Does it matter that using the booking agent is optional?
A: No -- once the traveler chooses to use the booking agent and pay its fee to secure the room, that fee becomes part of the required consideration for occupancy and is taxed as such.

Q: Does this ruling apply to my hotel's or travel agency's booking-fee arrangement?
A: Not automatically. An Advisory Opinion binds the Department only for the taxpayer and facts it was issued to, and it can't be relied on by anyone else. Your own structure would need its own analysis.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1997.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a97_58s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-97(58)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S970513B

On May 13, 1997, the Department of Taxation and Finance received a Petition
for Advisory Opinion from KPMG Peat Marwick, LLP, 100 North Tampa Street, Suite
2400, Tampa, Florida 33602.
The issue raised by Petitioner is whether the charges to its client for
hotel booking fees are subject to New York State sales tax.
Petitioner submitted the following facts as the basis for this Advisory
Opinion.
Petitioner’s client, domiciled outside the United States, does business as
a travel agent. Often, Petitioner’s client sells "tour packages" to foreign
citizens vacationing in New York.
The tour packages provide Petitioner’s
client’s customers, under one lump sum charged, with airline tickets, hotel
accommodations, bus service, and other miscellaneous additional items commonly
included in a vacation package.
To provide better service to its customers, a large hotel located in New
York (the "Hotel") recently established a separate legal entity that operates as
a booking agent for the Hotel. The booking agent maintains books and records
with respect to its own activities separate and apart from the Hotel’s books and
records. This booking agent assists Petitioner’s client by providing information
on available room rental discounts that arise either from renting a large number
of rooms (quantity discounts) or from renting the rooms during off-peak times of
the year. Ordinarily, the booking agent negotiates a "package deal" at a reduced
rental rate, thus saving Petitioner’s client money. The booking fee charged by
the booking agent is usually about 20 percent of the amount charged by the Hotel
for the room rental and in no circumstances is the booking fee greater than 25
percent charged by the Hotel for room rental. In addition to providing a booking
service for the Hotel, the booking agent also provides travel brochures and
travel guides highlighting areas of interest in the immediate vicinity. These
travel brochures and guides are provided to the travel agent at no charge.
The following scenario is representative of the aforementioned transaction
when Petitioner’s client (on behalf of its customers) rents hotel rooms from the
Hotel and the transaction is negotiated by the booking agent:
After the booking agent negotiates a price per room on behalf of the
Hotel with Petitioner’s client, Petitioner’s client rents rooms from
the Hotel for $80 per room plus applicable tax that is invoiced by
and paid directly to the Hotel by Petitioner’s client. The booking
agent then separately invoices Petitioner’s client an additional $20
per room for booking services charged for negotiating the
transaction.

-2­
TSB-A-97(58)S
Sales Tax

The booking service is a valuable service that is performed by the booking
agent for Petitioner’s client and the Hotel in that Petitioner’s client is able
to obtain reduced rates and the Hotel is able to achieve a higher occupancy rate.
This fee is not a mandatory fee required by the Hotel. Petitioner’s client can
avoid this fee by choosing not to use the booking agent to negotiate room
rentals. However, the total combined amount charged by the Hotel and the booking
agent, upon utilizing the booking agent’s services to negotiate the transaction,
is usually less than the normal room rate charged by the Hotel.
Applicable Law and Authority
Section 1105(e) of the Tax Law imposes sales tax on:
The rent for every occupancy of a room or rooms in a hotel in this
state, except that the tax shall not be imposed upon (1) a permanent
resident, or (2) where the rent is not more than at the rate of two
dollars per day.
Section 1101(c)(6) of the Tax Law defines “rent” as “the consideration
received for occupancy valued in money, whether received in money or otherwise.”
Technical Services Bureau Memorandum, TSB-M-92(7)S, dated December 7,
1992, entitled Providers of Bed and Breakfast Services Required to Collect Sales
Tax provides, in part:
A bed and breakfast facility or guest house . . . is similar
to a hotel or motel, and the host of such an operation is therefore
considered to be providing a hotel or motel service. Accordingly,
any charge made by or on behalf of the host for occupancy in such a
facility is subject to sales tax.
*

*

*

A bed and breakfast registry is a type of referral agency . .
. Persons interested in staying in such places contact the registry,
and the registry, in turn, puts the two parties together for a fee
or commission.
*

*

*

It should be noted that in all instances where a fee,
commission, service charge, etc., is added to the bill for
occupancy, by or on behalf of a bed & breakfast registry or similar
agency, such charge must be included in the amount of the taxable
receipt even if this fee is separately stated from the amount of the
room charge. (Emphasis added)

-3­
TSB-A-97(58)S
Sales Tax

EXAMPLE (6)
Suppose the receipt . . . was written as follows:
2 nights stay
Registry fee
Sales tax 7%
Total amount due

$155.00
15.00
11.90
$181.90

The sales tax must be calculated upon the total amount of the
charge to the customer regardless of whether the registry fee is
separately stated from the room charge.
Opinion
In its business as a travel agent, Petitioner’s client may utilize the
services of a booking agent to negotiate reduced rate room rentals at a large
hotel located in New York State. The booking agent was created by the hotel to
operate on behalf of the hotel. Petitioner’s client enlists the services of the
booking agent to negotiate a price per room for Petitioner’s client’s customers.
Petitioner’s client then includes the room rentals as part of the vacation
packages it sells to its customers. In operating on behalf of the hotel, the
booking agent is holding itself out as having rooms available for the lodging of
guests, and Petitioner’s client is considered to be contracting for occupancy
through the booking agency (see TSB-M-92(7)S, supra).
In addition to the hotel room charge billed by the hotel, Petitioner’s
client is charged and billed separately a 20-25 percent fee by the booking agent
for its service. A room in the hotel cannot be rented through the booking agent
unless the occupant (i.e., the purchaser of the package) pays the booking agent
fee. Rent subject to tax is the consideration received for occupancy whether
valued in money or otherwise (Tax Law, Section 1101(c)(6)). The entire occupancy
charge to Petitioner’s client in this case consists of the booking agency fee and
the hotel’s room charge (see Bed & Breakfast U.S.A., LTD, Adv Op Comm T&F,
August 31, 1987, TSB-A-87(29)S; TSB-M-92(7)S, supra). The room cannot be charged
unless both charges are paid.
The fact that these charges are separately
invoiced and billed to Petitioner’s client is immaterial; the fee required by

-4­
TSB-A-97(58)S
Sales Tax

the booking agency is part of the occupancy charge.
Accordingly, in those
instances where a fee, commission or service charge is part of the charge for
occupancy, the total amount upon which Petitioner’s client must pay sales tax
includes both the room charge and the booking agency fee.

DATED: September 4, 1997

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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