Under South Carolina's 1989 guidance, did a hotel owe sales and accommodations tax on separately billed local calls, long-distance calls, and pay-per-view movies?

Plain-English summary

South Carolina Revenue Ruling 89-17 held that a hotel had to include separately billed charges for all three of these items in the historical sales and accommodations tax base:

• local telephone calls;
• long-distance telephone calls; and
• pay-per-view movies.

The Commission treated those charges as components of the price paid for the room or accommodation, even when the hotel listed them separately on the guest's bill.

The ruling also held that telephone service sold to the hotel was not a wholesale sale. The hotel used the service in providing accommodations rather than reselling it to the guest. The telephone company's long-distance charges to the hotel, however, fell within the statutory exemption quoted in the ruling.

Separately billed guest charges

Section 12-35-1120 imposed the historical sales tax on gross proceeds from transient rooms, lodging, and accommodations. Section 12-35-710 added a 2% accommodations tax to transient-accommodation proceeds subject to state sales tax.

The ruling quoted a 5% sales-tax rate and combined it with the 2% accommodations tax for a historical total of 7% on accommodation charges.

RR 89-17 reasoned that a room's price varies with what the accommodation provides. A telephone or movie service in the room was comparable to other room features and overhead costs. Separate billing did not create a separate lease or resale of the room furnishing or service.

The hotel therefore included its guest charges for local calls, long-distance calls, and pay-per-view movies in gross proceeds from accommodations.

Telephone service sold to the hotel

Section 12-35-1150 taxed charges for ways or means of transmitting voice or messages. Section 12-35-140 treated specifically taxed services and intangibles, including communications, as tangible personal property for purposes of the chapter.

The wholesale-sale definition covered property sold to a licensed retailer for resale, not property sold to a user or consumer. Regulation 117.174.101 treated hotels as users or consumers of items they purchased to provide accommodations.

The ruling applied the same principle to communications. The hotel used telephone service in furnishing the room; it did not resell the telephone service to the guest. The telephone company's sale to the hotel was therefore not wholesale and was generally subject to sales tax.

Long-distance exemption at the telephone-company level

The ruling separately applied section 12-35-550(10), which exempted toll charges for voice transmissions between telephone exchanges, telegraph messages, and specified carrier-access and customer-access-line charges.

As a result, the telephone company's long-distance charge to the hotel was exempt, even though the hotel's separately billed long-distance charge to its guest was treated as part of the taxable accommodation price.

What this means for you

Hotels and lodging operators

Under this historical ruling, separately stating a room-related service did not keep it out of the accommodation tax base. The Commission focused on whether the charge was a component of what the guest received with the room.

Hospitality tax managers and hotel accountants

The transaction level mattered. The hotel's charge to its guest and the telephone company's charge to the hotel received different treatment. Records should identify the seller, buyer, service, and statutory exemption involved.

Telephone-service providers

Telephone service furnished to the hotel was not treated as a wholesale resale merely because the hotel separately charged guests. The ruling nevertheless recognized the quoted exemption for the provider's long-distance toll charge.

Current transactions

RR 89-17 applied 1989 law and historical rates. Current hotel-charge rules, communications provisions, exemptions, rates, regulations, and later guidance must be verified.

Common questions

Q: Did separate billing keep a hotel's local-call charge out of the accommodation tax base?

A: No. The ruling treated the charge as a component of the accommodation price.

Q: What about a separately billed long-distance call?

A: The hotel's charge to the guest was subject to sales and accommodations tax as part of the accommodation price.

Q: Were pay-per-view movies treated differently from phone calls?

A: No. The ruling treated the separately billed movie charge as another component of the room price.

Q: Was telephone service sold to the hotel a wholesale sale for resale?

A: No. The hotel used the service in providing accommodations rather than reselling it.

Q: Why was the telephone company's long-distance charge to the hotel exempt?

A: The ruling applied the statutory exemption for toll charges between telephone exchanges.

Q: Is the 7% combined rate in RR 89-17 current?

A: Not necessarily. It was the historical combination quoted in the 1989 ruling, and current law must be checked.

Citations and references

• S.C. Code Ann. section 12-35-1120 (Supp. 1988) — historical sales tax on transient accommodations
• S.C. Code Ann. section 12-35-710 (Supp. 1988) — historical 2% accommodations tax
• S.C. Code Ann. section 12-35-1150 (1976) — tax on communication-service charges
• S.C. Code section 12-35-140 — communications treated as tangible personal property for the chapter
• S.C. Code section 12-35-170 — wholesale-sale definition quoted in the ruling
• S.C. Code section 12-35-550(10) — long-distance and specified access-charge exemption quoted in the ruling
• Regulation 117.174.101 — hotel purchases for use or consumption
• S.C. Code section 12-3-170 and SC Revenue Procedure 87-3 — authority cited for the Revenue Ruling
• Telerent Leasing Corporation v. High, 174 S.E.2d 11 (N.C. Ct. App. 1970); Red Roof Inns v. Limbach, No. 84.84-C1141 (Ohio Bd. Tax App. Aug. 28, 1987); Hotels Statler Company, Inc. v. District of Columbia, 199 F.2d 172 (1952); and Atlanta Americana Motor Hotel Corp. v. Undercofler, 222 Ga. 295, 149 S.E.2d 691 (1966) — hotel-room components and hotel use or consumption discussed in the ruling

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR89-17.pdf

Original ruling text

SC REVENUE RULING #89-17

SUBJECT:

Hotels: Charges for Telephone Calls and Movies
(Sales and Accommodations Tax)

EFFECTIVE DATE:

October 1, 1989

SUPERSEDES:

All previous documents and any oral directives in conflict herewith.

REFERENCE:

S.C. Code Ann. Section 12-35-1120 (Supp. 1988)
S.C. Code Ann. Section 12-35-710 (Supp. 1988)
S.C. Code Ann. Section 12-35-1150 (1976)

AUTHORITY:

S.C. Code Ann. Section 12-3-170 (1976)
SC Revenue Procedure #87-3

SCOPE:

A Revenue Ruling is the Commission's official interpretation of how tax
law is to be applied to a specific set of facts. A Revenue Ruling is
public information and remains a permanent docu ment until superseded
by a Regulation or is rescinded by a subsequent Revenue Ruling.

Questions:
1.

Are charges, separately billed by a hotel for local telephone calls, subject to the sales and
accommodations taxes, pursuant to Code Sections 12-35-1120 and 12-35-710?

2.

Are charges, separately billed by a hotel for long distance telephone calls, subject to the
sales and accommodations taxes, pursuant to Code Sections 12-35-1120 and 12-35-710?

3.

Are charges, separately billed by a hotel for "pay for view" movies, subject to the sales and
accommodations taxes, pursuant to Code Sections 12-35-1120 and 12-35-710?

4.

Are sales of telephone services to a hotel wholesale sales, thereby excluded from the sales
tax, pursuant to Code Section 12-35-170?

Facts:
Hotels generally provide a telephone in each room for the use by their guests. With respect to
local calls, some hotels include the cost in the price of the room, without a separate billing; and,
some charge separately, on a per call or per day basis. In addition, some hotels permit guests to
make long distance calls. The hotel then separately bills the guest for each long distance call.

1

Hotels also provide guests the opportunity to watch movies in their rooms, on a pay per view
basis.
Code Section 12-35-1120 imposes the sales tax upon transient accommodations, and reads:
Notwithstanding any other provision of law, the license and the sales or use tax imposed by
this chapter shall apply with respect to the gross proceeds derived from the rental or
charges for any rooms, campground spaces, lodgings or accommodations furnished to
transients by any hotel, inn, tourist court, tourist camp, motel, campground, residence or
any place in which rooms, lodgings or accommodations are furnished to transients for a
consideration, except where such facilities consist of less than six sleeping rooms contained
in a single building which is used as the place of abode of the owner or operator of such
facilities. The gross proceeds derived from the lease or rental of accommodations supplied
to the same person for a period of ninety continuous days shall not be considered proceeds
from transients. The tax provided for in this section shall be at the rate of [five] percent.
Code Section 12-35-710 imposes the 2% accommodations tax and reads, in part:
(1) In addition to the tax levied in [Sections] 12-35-510, 12-35-810, and 12-35-1120 and
Article 11 of Chapter 35 of Title 12, there is levied and imposed an additional sales tax of
two percent of the gross proceeds from the rental of transient accommodations, including
campgrounds, which are subject to the state sales tax.
Therefore, a seven percent tax (5% sales tax + 2% accommodations tax) is imposed on the "gross
proceeds derived from the rental or charges for... accommodations".
Furthermore, telephone companies have been remitting the sales tax on local telephone services
provided to hotels, pursuant to Code Section 12-35-1150. That section reads:
Notwithstanding any other provision of law, the gross proceeds accruing or proceeding
from the charges for the ways or means for the transmission of the voice or of messages,
including the charges for use of equipment furnished by the seller or supplier of the ways
or means for the transmission of the voice or of messages, are subject to the license, sales
or use tax, as provided by this chapter.
Discussions:
1., 2., & 3.
The first issues to be addressed are whether charges for local calls, long distance calls and
"pay for view" movies, billed separately by the hotel, are subject to the sales and
accommodations taxes.
Code Section 12-35-1120 imposes the sales tax on transient accommodations, with the
measure of the tax being the "gross proceeds derived from the rental or charges for any
rooms...or accommodations furnished to transients...for a consideration,..."

2

One of the primary rules of statutory construction is that words used in a statute should be
taken in their ordinary and popular meaning, unless there is something in the statute which
requires a different interpretation. Hughes v. Edwards, 265 S.C. 529, 220 S.E. 2d 231;
Investors Premium Corp. v. South Carolina Tax Commission, 260 S.C. 13, 193 S.E. 2d 642.
Also, where the terms of a statute are clear and unambiguous and leave no room for
construction, they must be applied according to their literal meaning. Mitchell v. Mitchell,
266 S.C. 196, 222 S.E. 2d 217; Green v. Zimmerman, 269 S.C. 535, 238 S.E. 2d 323.
It is an accepted practice in South Carolina to resort to the dictionary to determine the literal
meaning of words used in statutes. For cases where this has been done, see Hay v. South
Carolina Tax Commission, 273 SC 269, 255 SE 2d 837 (1979); Fennell v. South Carolina
Tax Commission, 233 S.C. 43, 103 SE2d 424 (1958); Etiwan Fertilizer Co. v. South Carolina
Tax Commission, 217 SC 484, 60 SE2d 682 (1950).
Black's Law Dictionary, Fifth Edition, defines "rent" (Rental: See rent), in part, as
"[c]onsideration paid for use or occupation of property" (emphasis added). The term
"charges" is defined as "[t]he expenses which have been incurred or disbursements made, in
connection with a contract, suit, or business transaction".
In addition, the Court of Appeals of North Carolina in Telerent Leasing Corporation v. High,
N.C. , 174 S.E. 2d 11 (1970), held that:
When a room is rented to a transient guest, it is common practice that the price of the
room varies according to the accommodations furnished. For instance, a room with two
double beds will usually rent for a higher rate than will one with a single twin bed.
Likewise, it is conceivable that a room with a television set would rent at a slightly
higher rate than a room similarly furnished, but without a television. It is clear,
however, that there is no separate lease or rental of each furnishing which may appear
in the room. The consideration paid is for the lodging or accommodation itself-not for
a specific bed, lamp, painting, table, chair or television (emphasis added).
Furthermore, the Ohio Board of Tax Appeals in Red Roof Inns v. Limbach, No. 84.84-C1141, August 28, 1987, held, with respect to a $.35 daily charge for use by the guest of the
room phone, that:
We expressly find that the phone charge is a component of the price paid for the room.
The phone charge is an overhead cost akin to the cost of gas, electricity and water
which are factored into the room charge.
In summary, "phone [and movie charges are components] of the price paid for the room".
"Likewise, it is conceivable that a room with [movies or the use of a telephone] would rent at
a slightly higher rate than a room similarly furnished, but without [movies or the use of a
telephone]".

4. The second issue is whether or not sales of telephone services to a hotel, by a telephone
   company, are wholesale sales, thereby not subject to tax.

3

Code Section 12-35-1150 imposes the sales, use and license taxes upon the "gross
proceeds accruing or proceeding from the charges for the ways or means for the
transmission of the voice or of messages....."
Code Section 12-35-140 reads, in part: "...the term tangible personal property shall be
interchangeable with and apply with equal force and effect to services....and intangibles,
including communications as are specifically provided for in this chapter" (emphasis
added).
Code Section 12-35-170 defines "wholesale sale" or "sale at wholesale" and reads, in
part:
The terms "wholesale sale" and "sale at wholesale" mean a sale of tangible personal
property by wholesalers to licensed retailer merchants...for resale, and do not include
a sale by wholesalers to users or consumers, not for resale (emphasis added).
Regulation 117.174.101, entitled "Hotels, Lodging Houses, Apartment Houses, Tourist
Camps", reads, in part:
Hotels, lodging houses, apartment houses, tourist camps and the like are subject to the
sales or use tax, whichever may apply at the time of purchase for use or consumption
of beds, bedding, carpets, shades, curtains, linens, uniforms, supplies, fuel for heating
and cooking, air conditioning equipment, etc.
Furthermore, the courts have held that a hotel does not lease or rent towels, sheets, or
soap to its guests, but use or consume such items in providing accommodations. (See
Hotels Statler Company, Inc. v. District of Columbia, 199 F.2d 172 (1952); Atlanta
Americana Motor Hotel Corp. v. Undercofler, 222 Ga. 295, 149 S.E.2d 691 (1966)).
In summary, purchases of tangible personal property (communications) by a hotel, in providing
accommodations to transients, are not considered to be rented or resold to transients, but are,
instead, used by the hotel.
However, Code Section 12-35-550 provides certain exemptions from the sales, use and/or
accommodations taxes. Subsection (10) of that section specifically exempts:
The gross proceeds from the toll charges for the transmission of voice or messages
between telephone exchanges and telegraph messages, and carrier access charges and
customer access line charges established by the Federal Communications Commission or
the South Carolina Public Service Commission.
In summary, the gross proceeds derived from long distance calls are exempt from the tax
imposed by Code Section 12-35-1140.

4

Conclusions:
1., 2., & 3.
Charges, separately billed by a hotel, for local and long distance telephone calls and "pay for
view" movies are components of the price paid for the accommodations, and, therefore,
subject to the sales and accommodations taxes, pursuant to Code Sections 12-35-1120 and
12-35-710.

4. Sales of telephone services to a hotel are not wholesale sales, and therefore, such sales are
   subject to the sales tax.
   However, charges for long distance calls by the telephone company to the hotel are exempt
   from the tax, pursuant to Code Section 12-35-550(10).

SOUTH CAROLINA TAX COMMISSION

s/S. Hunter Howard Jr.
S. Hunter Howard, Jr., Chairman

s/A. Crawford Clarkson Jr.
A. Crawford Clarkson, Jr., Commissioner

Columbia, South Carolina
July 5
, 1989

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