How did SC Revenue Ruling 91-3 tax hotel-guest valet laundry charges, the cleaner's charge to the hotel, and cleaning of hotel-owned linens?

Plain-English summary

South Carolina Revenue Ruling 91-3 treated hotel-guest laundry and dry-cleaning service as a two-step resale transaction:

1. Cleaner to hotel: nontaxable wholesale sale for resale when the cleaner handled a guest's clothing.
2. Hotel to guest: taxable retail valet service at the historical 5% additional-guest-charge rate.

Cleaning the hotel's own sheets, pillowcases, linens, or similar property was different. The hotel used or consumed that service, so the cleaner's charge to the hotel was taxable.

How the valet arrangement worked

A guest placed clothing in a bag for hotel pickup. The hotel delivered it to an independent laundry or dry cleaner, paid the cleaner, and billed the guest. The hotel's charge could equal the cleaner's amount or include an added service charge.

The ruling treated the guest-clothing service as separate from the room accommodation. Valet service was an optional adjunct to the hotel's primary lodging business, not an item physically contained in or integral to the room.

Cleaner-to-hotel sale: wholesale

Sections 12-36-110 and 12-36-120 distinguished taxable retail sales to users or consumers from wholesale sales to licensed retailers for resale.

Because the hotel resold the guest's laundry or dry-cleaning service as a distinct valet charge, the cleaner's sale to the hotel was a wholesale transaction and not subject to sales tax.

The result changed when the cleaner serviced hotel property. Cleaning sheets, pillowcases, and hotel linens was consumed by the hotel in providing accommodations, making that transaction taxable to the hotel.

Hotel-to-guest sale: historical 5% rate

Section 12-36-920(A) imposed a historical 7% rate on transient accommodations but excluded additional guest charges from that subsection.

Section 12-36-920(B) imposed a historical 5% rate on additional guest charges and expressly included laundering and dry-cleaning services. The hotel's valet-service charge to the guest therefore was taxable at 5%, not 7%.

Transition relief for prior policy

The ruling acknowledged that the Commission's earlier policy had taxed the cleaner-to-hotel transaction and not the hotel-to-guest valet charge. Taxpayers who followed that prior policy from May 1, 1990 through April 30, 1991 would not be assessed for taxes resulting from doing so.

What this means for you

Hotels

The ruling required tax on the guest's valet charge while allowing the hotel to acquire the resold guest service as a wholesale purchase.

Laundries and dry cleaners

The tax result depended on whose property was cleaned and whether the hotel resold the service. Guest clothing qualified for resale treatment; hotel linens did not.

Hotel accounting teams

Optional guest valet charges were separated from the room rate and classified as additional guest charges under the historical statute.

Current operators

Confirm current rates, resale documentation, and Department guidance. The rates and transition period in RR 91-3 are historical.

Common questions

Q: Did the cleaner charge sales tax to the hotel for cleaning guest clothing?

A: No. The ruling treated that charge as a wholesale sale for resale.

Q: Did the hotel charge tax to the guest?

A: Yes. The hotel-to-guest valet service was a taxable retail sale.

Q: Was the historical rate 5% or 7%?

A: Five percent, because laundering and dry cleaning were listed as additional guest charges.

Q: What about cleaning the hotel's sheets and linens?

A: That charge was taxable to the hotel because it used or consumed the cleaning service.

Q: What transition relief did the ruling provide?

A: It protected taxpayers who followed the former Commission policy from May 1, 1990 through April 30, 1991 from assessments caused by that reliance.

Citations and references

• S.C. Code Ann. § 12-36-910(B)(1) — historical taxation of laundering and dry-cleaning services
• S.C. Code Ann. § 12-36-920(A) and (B) — historical accommodation and additional-guest-charge rates
• S.C. Code Ann. §§ 12-36-60 and 12-36-70 — historical property and retailer definitions
• S.C. Code Ann. §§ 12-36-110 and 12-36-120 — historical retail and wholesale sale definitions
• S.C. Regulation 117-174.101 — hotel purchases for use or consumption
• Hotels Statler Co., Inc. v. District of Columbia; Atlanta Americana Motor Hotel Corp. v. Undercofler; and Kentucky Board of Tax Appeals v. Brown Hotel Company — hotel-consumption cases cited by the ruling
• Commission Decision dated October 22, 1987 — prior policy cited by the ruling

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR91-3.pdf

Original ruling text

SC REVENUE RULING #91-3

SUBJECT:

Laundry and Dry Cleaning (Valet) Services Provided to Hotel Guests
(Sales Tax)

TAX MANAGER:

Jerry Knight

EFFECTIVE DATE: May 1, 1990
SUPERSEDES:

SC Information Letter #89-25 and all previous documents and any oral
directives in conflict herewith.

REFERENCE:

S.C. Code Ann. Section 12-36-910(B)(1) (Effective July 1, 1990)
S.C. Code Ann. Section 12-36-920(A) (Effective July 1, 1990)
S.C. Code Ann. Section 12-36-920(B) (Effective July 1, 1990)

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 document until superseded by a
Regulation or is rescinded by a subsequent Revenue Ruling.

Questions:
1.

Are charges billed by laundries and dry cleaners to hotels for services provided to the
hotels' guests subject to the sales tax, pursuant to Code Section 12-36-910(B)(1)?

2.

When hotels bill their guests for laundering and dry cleaning ("valet") services, are such
charges subject to the sales tax?

3.

If the answer to question #2 is "yes", what is the appropriate tax rate - 5% or 7%?

Facts:
Many hotels contract with independent laundries and dry cleaning establishments to clean their
guests' clothing. These services are commonly referred to as "valet services".
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Typically, the guests will place their clothing in a bag to be picked up by a hotel employee. The
hotel then delivers the clothing to the laundry or dry cleaners (hereafter referred to as "cleaners").
The hotel, on receipt of the clean clothing, or on a periodic basis, will pay the cleaners for its
services. The hotel, in turn, bills its guests for the services. The amount billed by the hotel may
only be that charged by the cleaners, or may include an additional charge for providing the
service.
Discussion:
Laundering and dry cleaning services are taxed at Code Section 12-36-910(B)(1), which reads, in
part:
The sales tax also applies to the gross proceeds accruing or proceeding from the business
of providing any laundering [or] dry cleaning...service...
S.C. Code Section 12-36-920(A) reads, in part:
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....for a consideration.

The tax imposed by this subsection (A) does not apply to additional guest charges as
defined in subsection (B).
As a result of recodification and a May 1, 1990 amendment, Code Section 12-36-920(B) reads:
A sales tax of five 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. The term "additional guest charges" includes,
but is not limited to:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)

room service;
amenities;
entertainment;
special items in promotional tourist packages;
laundering and dry cleaning services;
in-room movies;
telephone charges;
rentals of meeting rooms; and
other guest charges. (emphasis added)

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Prior to the May 1st amendment, only "meals and other special items in promotional tourist
packages or the rental of meeting rooms" were taxed at the 5% rate. Other gross proceeds
derived from the rental or charges for accommodations were taxed at 7%.
Before addressing the specific questions at hand, it it helpful to discuss applicability of the sales
and use taxes to cleaners and hotels, in general.
Code Section 12-36-910(A) imposes the sales tax "upon every person engaged or continuing
within this State in the business of selling tangible personal property at retail". By definition
(Code Section 12-36-60), "laundry and related services" are tangible personal property; and,
Code Section 12-36-70 defines the term "retailer", in part, as "every person furnishing
accommodations to transients for a consideration" and, as "every person operating a laundry [or]
cleaning establishment for a consideration".
The terms "sale at retail" and "retail sale" are defined at Code Section 12-36-110, in part, as "all
sales of tangible personal property except those defined in this article as wholesale sales". The
term "wholesale sale" is defined at Code Section 12-36-120, in part, as "a sale of tangible
personal property to licensed retail merchants...for resale, and do not include sales to users or
consumers".
In summary, sales to the end user or consumer are subject to the sales tax (retail); whereas sales
of items for subsequent resale (wholesale) are not subject to taxation.
Regulation 117-174.101 pertains to the applicability of the sales and use taxes to hotels and
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.
In other words, hotels sell a service (accommodations) subject to the sales tax and, in so doing,
are also users or consumers of tangible personal property purchased by them which is used in
providing the accommodations. Such purchases, by definition, are retail transactions subject to
the sales or use tax.
As for the first question (sales by cleaners to hotels), it must be determined if the laundering and
dry cleaning services are being used by the hotel in providing its services (accommodations) or
whether the hotel is purchasing the laundering and dry cleaning services for resale to its guests,
as a separate and distinct service from that of providing the rooms or sleeping accommodations.
If it is determined that the hotel sells, or rents, the laundering and dry cleaning services
simultaneously with, and as an integral part of, the rooms, then such services are being used or
consumed by the hotel and are subject to the tax as retail sales of tangible personal property from
the cleaners to the hotel.

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However, if the laundering and dry cleaning services are provided (sold) by the hotels
independently of the rooms, then such services are not part of the accommodation services and
are, therefore, sales for resale to the hotel, which are not subject to the tax.
A review of the aforementioned Regulation 117-174.101 and pertinent case law [Hotels Statler
Co., Inc. v. District of Columbia, 91 U.S. App. D.C. 122, F.2d 172; Atlanta Americana Motor
Hotel Corp. v. Undercofler, 149 S.E.2d 691 (1966); and Kentucky Board of Tax Appeals v.
Brown Hotel Company, 528 S.W.2d 715 (1975)] reveals only those items which are physically
contained in, or an integral part of, the rooms (e.g. beds, linens, tables, paper products, telephone
services, electricity, etc.) are used or consumed by the hotels in providing accommodations.
Likewise, items such as lobby furniture, restaurant equipment, cash registers, office supplies and
cleaning supplies are used or consumed by hotels. As valet services are merely made available
to the guests as an adjunct to the hotel's primary business (the providing of rooms), they are not
part of the room being rented. Therefore, sales to hotels of laundering and dry cleaning services
are not sales at retail. The transactions between the cleaners and hotels are wholesale
transactions and th subsequent transactions between the hotels and their guests (valet services)
are retail transactions subject to taxation.
Having established that sales of the valet services between the hotels and their guests are retail
sales subject to taxation, we may look to the statute to determine whether such sales are taxable
at 5% or 7%.
Again, quoting from Code Section 12-36-920(B), "[a] sales tax of five percent is imposed on
additional guest charges at any place where rooms, lodgings, or accommodations are
furnished....The term 'additional guest charges' includes....laundering and dry cleaning services".
Conclusions:
1.

Sales by launderies and dry cleaners of their services to hotels for the hotels' guests are not
subject to the sales tax. Such sales are wholesale sales (sales for resale).
NOTE: Charges by launderies and dry cleaners to hotels for cleaning the sheets, pillow
cases, linens, etc. of the hotel are subject to the sales tax, as such services are used or
consumed by the hotel.

2.

Sales of laundering and dry cleaning services ("valet services") by hotels to their guests are
subject to the sales tax.

3.

Charges for valet services by hotels to their guests are taxable at 5%, pursuant to Code
Section 12-36-920(B).

NOTE: Prior to issuance of this document, Commission policy was to tax the transactions
between the cleaners and the hotels and not to tax the charges by the hotels to their guests for

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valet services. (See Commission Decision dated October 22, 1987.) Therefore, those taxpayers
following past policy for the period May 1, 1990 through April 30, 1991 will not be assessed for
any taxes which may be due as a result of following that policy.

SOUTH CAROLINA TAX COMMISSION

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

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

s/T. R. McConnell
T. R. McConnell, Commissioner

Columbia, South Carolina
, 1991
February 13

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