Is hurricane rental insurance charged with a South Carolina vacation rental subject to accommodations tax?

Plain-English summary

South Carolina Revenue Ruling 14-7 distinguishes optional from mandatory hurricane rental insurance offered with coastal vacation accommodations.

• An optional charge is not part of the room price and is not one of the statute's listed additional guest charges, so the ruling treats it as not subject to sales tax.
• A mandatory charge is part of the price of furnishing the accommodation and is taxed at the ruling's 7% accommodations rate when the lodging is furnished.

Whether lodging was “furnished” depends on the guest's occupancy rights, not simply whether the guest stayed every reserved night.

When the rental is furnished

The accommodation is furnished if the vacationer:

• actually occupies the unit for any part of the reserved period; or
• has the right to occupy the unit for any part of that period but chooses not to.

In that situation, the lodging charge is taxable. A mandatory insurance charge is also taxable as part of the lodging price, while an optional insurance charge remains nontaxable under the ruling.

Complete hurricane cancellation

The ruling reaches a different result when the entire vacation is canceled because:

• law enforcement prevents anyone from entering the area for the whole reserved period; or
• the hurricane destroys the unit and neither it nor a replacement is available during the whole reserved period.

Then no sleeping accommodation was furnished. The lodging charge and both optional and mandatory hurricane rental insurance charges are not taxable.

Partial evacuation example

If a guest occupies a vacation home and a mandatory evacuation begins later in the week, the accommodation was still furnished for part of the agreed period. The tax result therefore follows the furnished-accommodation rules even if insurance reimburses the guest for lost days.

Common questions

Q: Is optional hurricane rental insurance taxable?

A: No under the ruling's facts.

Q: Is a mandatory hurricane-protection fee taxable?

A: Yes as part of the accommodations price when the guest receives or has the right to receive lodging for any part of the reserved period.

Q: What if authorities bar entry for the entire vacation?

A: The accommodation is not furnished, so neither the lodging nor insurance charge is taxable under the ruling.

Q: What if the guest voluntarily chooses not to occupy an available rental?

A: The guest still had the right to occupy it, so the accommodation is furnished and the lodging charge remains taxable.

Citations and references

• S.C. Code Ann. § 12-36-920 (accommodations and additional guest charges)
• S.C. Code Ann. § 12-36-1110 (rate provision cited by the ruling)
• 2014 Act Nos. 172 and 259 (amendments applied by the ruling)
• S.C. Regulation 117-307.1 (cancellation and furnished-accommodation guidance)
• SC Revenue Ruling #14-5 (hotel-charge guidance discussed by the ruling)

Subject

Hurricane Rental Insurance

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR14-7.pdf

Original ruling text

State of South Carolina

Department of Revenue
300A Outlet Pointe Blvd., Columbia, South Carolina 29210
P.O. Box 125, Columbia, South Carolina 29214

SC REVENUE RULING #14-7

SUBJECT:

Hurricane Rental Insurance
(Sales Tax on Accommodations and Additional Guest Charges)

EFFECTIVE DATE:

July 1, 2014

SUPERSEDES:

SC Revenue Ruling #05-6 and all previous advisory opinions and any
oral directives in conflict herewith.

REFERENCE:

S.C. Code Ann. Section 12-36-920 (2014; As Amended by Act No.172
and Act No. 259 of 2014)
SC Regulation 117-307.1

AUTHORITY:

S.C. Code Ann. Section 12-4-320 (2014)
S.C. Code Ann. Section 1-23-10(4) (2005)
SC Revenue Procedure #09-3

SCOPE:

The purpose of a Revenue Ruling is to provide guidance to the public. It
is an advisory opinion issued to apply principles of tax law to a set of
facts or a general category of taxpayers. It is the Department’s position
until superseded or modified by a change in statute, regulation, court
decision, or another Departmental advisory opinion.

Questions:

1. Is an optional charge for hurricane rental insurance, as discussed in the facts, subject to the
   sales tax?
2. Is a mandatory charge for hurricane rental insurance, as discussed in the facts, subject to the
   sales tax?

Conclusions:

1. An optional charge for hurricane rental insurance, as discussed in the facts, is not subject to
   the sales tax. As an optional charge, it is not a part of the charge for the sleeping
   accommodations under Code Section 12-36-920(A) and it is not an “additional guest charge”
   under Code Section 12-36-920(B).

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2. A mandatory charge for hurricane rental insurance, as discussed in the facts, is subject to the
7% sales tax under Code Section 12-36-920(A) as a part of the charge for furnishing the sleeping
accommodations.
Note: Sleeping accommodations are “furnished” if the vacationer takes occupancy, or has the
right to take occupancy, of a rental unit for any or all of the time previously agreed to when the
reservations were made. If a mandatory evacuation order or hurricane causes the complete
cancellation of a person’s vacation because law enforcement will not allow anyone to enter the
area during the entire time originally reserved for the vacation, or a hurricane destroys the rental
unit and the vacationer cannot take occupancy of the unit or any replacement unit during the
entire time originally reserved for the vacation, then the sleeping accommodations were not
“furnished” and the charges for the sleeping accommodations are not subject to the tax. In
addition, charges for the optional or mandatory hurricane rental insurance are not subject to the
tax.
If the sleeping accommodations are furnished because the vacationer actually takes occupancy,
or has the right to take occupancy of a rental unit (but chooses not to), for any or all the time
previously agreed to when the reservations were made, then the charges for the sleeping
accommodations are subject to the tax. If the charges for the hurricane rental insurance are
mandatory, then such charges are part of the charge for the accommodations and subject to the
tax. If charges for hurricane rental insurance are optional, then such charges are not subject to the
sales tax.

Facts:
Persons offering sleeping accommodations to transients will typically provide various amenities
and services for an additional fee. The charges for many such amenities and services are
discussed in SC Revenue Ruling #14-5.
Along the coast of South Carolina, many persons furnishing accommodations offer hurricane
rental insurance. For a fee paid to the person offering sleeping accommodations, a guest may
obtain hurricane rental insurance. This insurance will protect the vacationer against a mandatory
evacuation due to a hurricane. In most cases, the charge for the hurricane rental insurance is
optional.
For example, if a vacationer has rented a home for one week beginning on a Saturday and a
mandatory evacuation order is issued on Monday, then the insurance will cover the vacationer
for the time lost as a result of the evacuation order. In addition, the insurance may also cover
circumstances in which the vacationer is not even able to take occupancy of the home and must
forego the vacation because of the mandatory evacuation and subsequent damage caused by a
hurricane.

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Discussion:
Code Section 12-36-920, as amended by Act No. 172 and Act No. 259 (Section 3) of 2014, 1
imposes a sales tax upon accommodations and "additional guest charges" and reads, in part:
(A) A sales tax equal to seven percent is imposed on the gross proceeds derived
from the rental or charges for any rooms, campground spaces, lodgings, or
sleeping accommodations furnished to transients by any hotel, inn, tourist court,
tourist camp, motel, campground, residence, or any place in which rooms,
lodgings, or sleeping accommodations are furnished to transients for a
consideration. This tax does not apply:
(1) where the facilities consist of less than six sleeping rooms, contained on the
same premises, which is used as the individual's place of abode; or
(2) to gross proceeds from rental income wholly excluded from the gross income
of the taxpayer pursuant to Internal Revenue Code Section 280A(g) as that code is
defined in Section 12-6-40(A).
The gross proceeds derived from the lease or rental of sleeping accommodations
supplied to the same person for a period of ninety continuous days are not
considered proceeds from transients. The tax imposed by this subsection (A) does
not apply to additional guest charges as defined in subsection (B) or separately
stated optional charges on a bill to a customer for amenities, entertainment,
special items in promotional tourist packages, and other guest services.
(B) A sales tax of [six] 2 percent is imposed on additional guest charges at any
place where rooms, lodgings, or accommodations are furnished to transients for a
consideration, unless otherwise taxed under this chapter. For purposes of this
subsection, additional guest charges are limited to charges for:
(1) room service;
(2) laundering and dry cleaning services;
(3) in-room movies;
(4) telephone service; and
(5) rentals of meeting rooms.

1

Act No. 172 amended Code Section 12-36-920 with respect to the taxation of “additional guest charges” and Act
No. 259, Section 3, amended Code Section 12-36-920(A) to exempt certain residential rentals.
2
Code Section 12-36-1110 increased the tax rate on “additional guest charges” from 5% to 6%.

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Furthermore, Commission Decision #95-27 held that "the term 'additional guest charge' means
an amount which is added to the guest's room charge for a specific amenity or service for the
guest." With the amendment to Code Section 12-36-920 by Act No.172 of 2014, effective July 1,
2014, the term “additional guest charge” means an amount which is added to the guest's room
charge for room service, laundering and dry cleaning services, in-room movies, telephone
services, and the rental of meeting rooms.
Therefore, charges for rooms, lodgings and accommodations are taxed at 7%, while other
charges for room service, laundering and dry cleaning services, in-room movies, telephone
services, and the rental of meeting rooms provided at the hotel, when over and above the services
customarily provided with the room, are taxed at 6% as an "additional guest charge." However,
if an "additional guest charge" would be taxed under other provisions of the sales and use tax law
(Chapter 36 of Title 12), then such charges are not taxed as an "additional guest charge."
Based on the above, it is the opinion of the Department that an optional charge for hurricane
rental insurance, as discussed in the facts, is not subject to either the 7% sales tax on
accommodations under Code Section 12-36-920(A) or the 6% sales tax as an “additional guest
charge” under Code Section 12-36-920(B).
However, if the charge for hurricane rental insurance is mandatory, then the charge is subject to
the 7% sales tax as a part of the charge for furnishing the sleeping accommodations.
With respect to this issue, we must also address scenarios in which a person reserves sleeping
accommodations but is unable to occupy such accommodations, or is required to evacuate the
sleeping accommodations during the vacation. In addressing this matter, it is important to review
issues with respect to “Cancellations” as established in Questions 29 and 30 of SC Regulation
117-307.1. The issues addressed in these questions and answers are analogous to certain
situations with respect to hurricane rental insurance and these questions and answers from the
regulation read as follows:
29.

Q. If a person reserves and pays for sleeping accommodations at a hotel,
but does not cancel the reservation or does not cancel the reservation by
the prescribed time set by the hotel, is the charge for the
accommodations retained by the hotel subject to the tax even though he
will not use the sleeping accommodations?
A. While the sleeping accommodations were not used, the person had the
right to use such sleeping accommodations. Therefore, the sleeping
accommodations were "furnished" and the charge by the hotel for such
sleeping accommodations is subject to the tax. See Question #30 for
information concerning when accommodations are canceled but an
administrative fee or deposit is charged or retained.

30.

Q. If a person makes reservations with a hotel for sleeping
accommodations, but the reservations are canceled by such person or by
the hotel, is an administrative fee or deposit charged or retained by the
hotel as a result of the cancellation subject to the tax?

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A. An administrative fee or deposit retained or charged by a hotel when
reservations for sleeping accommodations are canceled is not subject to
the sales tax. See Anonymous v. South Carolina Department of
Revenue, 97-ALJ-17-0263-CC (April 24, 1998) and Anonymous v.
South Carolina Department of Revenue, 97-ALJ-17-0379-CC (April 24,
1998).
Note: See Question #29 for information concerning when
accommodations are canceled or otherwise not used but a charge for the
sleeping accommodations is made or retained by the hotel. See also
Question #16, Example #1 Note, for the taxation of a tourist package
when sleeping accommodations are furnished but the guest does not use
a portion of the package (i.e., the guest pays for a golf package but does
not play golf).
Based on the above, sleeping accommodations are “furnished” if the vacationer takes occupancy,
or has the right to take occupancy, of a rental unit for any or all of the time previously agreed to
when the reservations were made. If a mandatory evacuation order or hurricane causes the
complete cancellation of a person’s vacation because law enforcement will not allow anyone to
enter the area during the entire time originally reserved for the vacation, or a hurricane destroys
the rental unit and the vacationer cannot take occupancy of the unit or any replacement unit
during the entire time originally reserved for the vacation, then the sleeping accommodations
were not “furnished” and the charges for the sleeping accommodations are not subject to the tax.
In addition, charges for the optional or mandatory hurricane rental insurance are not subject to
the tax.
If the sleeping accommodations are furnished because the vacationer actually takes occupancy,
or has the right to take occupancy of a rental unit (but chooses not to), for any or all the time
previously agreed to when the reservations were made, then the charges for the sleeping
accommodations are subject to the tax. If the charges for the hurricane rental insurance are
mandatory, then such charges are part of the charge for the accommodations and subject to the
tax. If charges for hurricane rental insurance are optional, then such charges are not subject to the
sales tax.

SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Rick Reames III
Rick Reames III, Director

October 28
, 2014
Columbia, South Carolina

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