Is a college-operated teaching hotel's room rent exempt from New York sales tax?

Plain-English summary

Paul Smith's College of Arts and Science runs a two-year/four-year hospitality program and operates the Hotel Saranac -- a hotel with fewer than 100 rooms -- as a working classroom for its students. Students staff nearly every hotel function: front desk, housekeeping, night audit, banquets, bartending, and food preparation, all as part of their training. The college itself is a tax-exempt organization under Tax Law § 1116(a)(4). It asked the Department whether the "rent" it collects for hotel rooms is covered by the exemption that applies to exempt organizations' own premises, and whether that exemption also reaches food served in guest rooms and food served elsewhere on the hotel premises.

The Department said the room rent is exempt. Section 1116(c) exempts occupancy and rent collected by an exempt organization operating a hotel as part of its own activities -- but Section 1116(b)(7) takes that exemption away if the college-run hotel offers 100 or more rooms. Because the Hotel Saranac has fewer than 100 rooms, the carve-back doesn't apply, and the college's room rent stays exempt.

Food is a different story. Charges for food and drink at a hotel restaurant, and charges for room service, are never treated as "rent" -- they're separately taxable receipts from food and drink sales under a different section of the Tax Law, regardless of who operates the hotel. If the college bundles room and meal charges together without separately stating them (or without using the Department's percentage-allocation schedule for such plans), the entire combined charge becomes taxable as rent instead.

What this means for you

Colleges, universities, and other exempt organizations running a hotel or inn

If your exempt organization operates a hotel as part of its own programs (not leased out to a for-profit operator), your room rent can be exempt under § 1116(c) -- but only if the hotel has fewer than 100 rooms available for occupancy. Crossing that 100-room line removes the exemption entirely for rent collected from patrons who aren't there on behalf of another exempt organization.

Hotel and restaurant operators bundling room and meal charges

Separately state your room and food charges. If you don't, and you're on a plan that includes both, you either have to use the Department's fixed percentage-allocation schedule to split out the taxable meal portion, or the entire combined charge becomes taxable. A hotel offering a "free" continental breakfast bundled into the room rate can keep the whole charge exempt (as rent) precisely because it isn't separately priced.

Accountants and tax professionals

The key statutory interaction here is between the general exempt-organization hotel exemption in § 1116(c) and the 100-room carve-back in § 1116(b)(7) -- both need to be checked together. Separately, 20 NYCRR § 527.9(b)(7) and (h) confirm that food, drink, and room-service charges are never "rent," so they fall outside § 1116(c) even when the hotel itself is otherwise exempt.

Common questions

Q: Does an exempt organization automatically avoid sales tax on all hotel charges it operates?
A: No. Only the room rent itself can be exempt under § 1116(c), and only if the hotel has fewer than 100 rooms. Food, drinks, and room service are taxed separately no matter who runs the hotel.

Q: What happens if room and meal charges aren't itemized separately?
A: The operator must either use the Department's percentage-allocation schedule in 20 NYCRR § 527.9(h) to split out the taxable meal portion, or the entire bundled charge becomes taxable.

Q: Does this ruling apply to my organization?
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. It shows how the Department reasons, but your facts may differ.

Citations and references

Statutes and regulations:

• Tax Law § 1101(c)(6) (definition of "rent")
• Tax Law § 1105(e) (hotel occupancy tax)
• Tax Law § 1116(a)(4), (b)(7), (c) (exempt organizations; 100-room carve-back for college/university hotels)
• 20 NYCRR § 527.9(b)(7), (h) (hotel occupancy regulations; food services offered by hotels)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1998.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a98_40s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-98(40)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S971231F

On December 31, 1997, the Department of Taxation and Finance received a
Petition for Advisory Opinion from Paul Smith’s College of Arts and Science, Rts.
86 & 30, PO Box 265, Paul Smiths, New York 12970. Petitioner, Paul Smith’s
College of Arts and Science, provided additional information pertaining to the
Petition on April 23, 1998.
The issue raised by Petitioner is whether the term “rent” referred to in
Section 1116(c) of the Tax Law includes all monies paid for services rendered at
the Hotel Saranac including room charges, food served in rooms and food served
on the Hotel premises.
Petitioner submits the following facts as the basis for this Advisory
Opinion.
Petitioner is currently an institution maintaining a two plus two (2+2)
program granting both Associates and Bachelors Degrees in Hotel Restaurant
Management, Culinary Arts and Forestry. Petitioner has been issued an Exempt
Organization Certificate from the Department of Taxation and Finance as a
qualifying exempt organization under Section 1116(a)(4) of the Tax Law. The
Hotel Saranac is a subsidiary of Petitioner. The Hotel Saranac owns the hotel
building and the land upon which it is built, but does not operate the hotel.
Petitioner operates the hotel as part of its educational program, using its own
employees. The Hotel Saranac provides an internship program for all students,
providing hands-on participation in the restaurant, lounge and hotel. Students
are allowed training in the most state-of-the-art hospitality computer programs
available. This training readies the students for their careers upon completion
of their internship and graduation from Petitioner. Students are trained in the
following hotel and restaurant computer programs:
a.

DELPHI, a banquet event program; and

b.

MEETING MATRIX, an event management program; and

c.

SPRINGER MILLER - HOST, a reservations and guest room
management program; and

d.

CBORD, an integrated food management and food service
program
which
touches
upon
inventory,
costing,
forecasting, purchasing and recipes. These systems
provide students with up-to-date technical training of
audit and internal controls.

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Sales Tax

In addition, the students perform all functions in the hotel including, but
not limited to, serving in the restaurant and lounge, bartending, food
preparation, banquet and catering services, front desk, night audit,
housekeeping, laundry, maintenance and food receiving. The hotel has less than
100 rooms available for occupancy.
Applicable Laws and Regulations
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.”
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 1116 of the Tax Law provides, in part:
(b) Nothing in this section shall exempt:
*

*

*

(7) rent received by a hotel operated by a college or
university, where such hotel offers one hundred or more rooms for
occupancy, and where the individual paying said rent is not doing
business on behalf of any organization exempted pursuant to
subdivision (a) of this section.
(c) (1) Where any organization described in paragraph four of
subdivision (a) of this section carries on its activities in
furtherance of the purposes for which it was organized, in premises
in which, as part of said activities, it operates a hotel, occupancy
of rooms in the premises and rents therefrom received by such
corporation or association shall not be subject to tax hereunder.
(2) Nothing in this subdivision shall exempt any hotel
operated by a college or university and which offers one hundred or
more rooms for occupancy from collecting taxes imposed pursuant to
section eleven hundred five of this article from individuals who are
not doing business on behalf of an organization exempted pursuant to
subdivision (a) of this section.

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Sales Tax

Section 527.9 of the Sales and Use Tax Regulations provides, in part:
Hotel occupancy. (Tax Law, Sec. 1105(e)) (a) Imposition. A
sales tax is imposed on every occupancy of any room or rooms in a
hotel, motel or similar establishment at the combined statewide and
local sales tax rate in effect at the situs of such establishment,
except that the tax shall not apply to (1) the charges for occupancy
by a permanent resident, or (2) where the charge is $2 or less per
day.
*
(b) Definitions.
shall mean:

*

*

As used in this section the following terms

*

*

*

(7) Rent. (i) The consideration received for occupancy valued
in money, whether received in money or otherwise. The term rent
includes separately stated charges for the use of furnishings and
equipment, maid service, towel and linen service, telephone service
and other accommodations.
(ii) Charges for food and drinks, entertainment, valet and
laundry service, theatre ticket service and transportation do not
constitute rent but may be taxable under other sections of the Tax
Law.
*

*

*

(h) Food services offered by hotels.
(1) American plan. (i) A hotel operating on the American plan,
modified American plan or other similar plan, must collect tax on
the total charge for both rooms (if the charge is more than $2 a
night) and meals for the first 90 days. When the occupant becomes a
permanent resident, the operator will discontinue collecting tax on
the room charge and, in lieu of establishing a separate charge for
meals, the operator may use the schedule shown below to determine
the percentage of the total charge to be apportioned to meals
furnished, and collect tax based on that amount.
SCHEDULE
Total charge includes
Room, breakfast, lunch, dinner
Room, lunch, dinner
Room, breakfast, dinner
Room, breakfast, lunch
Room, dinner
Room, lunch
Room, breakfast

Room
50%
60%
60%
70%
75%
85%
85%

Meals
50%
40%
40%
30%
25%
15%
15%

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Sales Tax

If the hotel operator neither separately states the charge for room
and meals nor uses the above schedule, the entire charge is taxable
whether the occupant is a permanent resident or not.
Example 1: A hotel charges a permanent resident for room and
meals a flat rate of $90 a week. Meals consist of breakfast and
dinner. The operator may use the preceding schedule and collect the
tax on 40 percent of the total ($36), which is the amount allocated
to meals.
(ii) A hotel offering a free continental breakfast (juice,
pastry and coffee) may not separately state a reasonable value for
the breakfast or use the American plan schedule set forth in
subparagraph (i) of this paragraph, as the entire charge is subject
to tax as rent for the room.
(2) The separately stated charges for food and drink at a
restaurant facility operated by a hotel are taxable. (See section
527.8 of this Part.)
(3) Charges for room service constitute part of the receipt
from the sale of food and drink and are taxable.
Opinion
In this case, Petitioner, an exempt organization under Section 1116(a)(4)
of the Tax Law, operates the Hotel Saranac as part of Petitioner’s educational
program.
The hotel has less than 100 rooms available for occupancy.
The
students perform many functions in the hotel such as serving in the restaurant
and lounge, bartending, food preparation, banquet and catering services, front
desk, night audit, housekeeping, laundry, maintenance and food receiving. Under
these circumstances, the rent received by Petitioner for occupancy in the Hotel
Saranac is exempt from sales tax under Section 1116(c) of the Tax Law.
Pursuant to Section 527.9(b)(7) of the Sales and Use Tax Regulations, rent
received for occupancy of a room in a hotel includes separately stated charges
for the use of furnishings and equipment, maid service, towel and linen services,
telephone service and other accommodations.
Charges for food and drink,
entertainment, valet and laundry service, theatre ticket service and
transportation do not constitute rent but may be taxable under other sections of
the Tax Law. (See Section 1105 of the Tax Law).
Separately stated charges for food and drink at a restaurant facility
operated by Petitioner at the hotel and charges for room service do not
constitute rent but are subject to sales tax under Section 1105(d) of the Tax
Law. If Petitioner offers meal plans at the hotel and does not separately state
room charges and meal charges, Petitioner may use the schedule in Section
527.9(h) of the Sales and Use Tax Regulations and collect tax on the portion of
the total charge allocated to meals under this schedule. Where Petitioner does

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Sales Tax

not separately state charges for the room and meals, nor use the schedule
referred to above to allocate a portion of the total charge to meals, the entire
charge is taxable. Where Petitioner is offering a free continental breakfast,
the entire charge for occupancy for a room in the hotel is considered rent and
is exempt from tax.

DATED: July 1, 1998

NOTE:

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

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