Is a hotel pay-per-view video service taxable in Utah, and if the video is delivered on a physical videocassette rather than by satellite or cable, does that change the answer?

Plain-English summary

A company that provides pay-per-view (PPV) hotel video entertainment, free-to-guest cable/satellite channels, and a similar CD-ROM-based video game service asked the Commission whether any of these were subject to Utah sales tax, and if so, who was responsible for remitting it -- the company or the hotel. Its PPV system works by housing a rack of video cassette players in a central hotel control unit; guests select a movie from an in-room menu, and the selected VCP plays the tape while the signal is carried by wire to the guest's television.

The Commission's position evolved across three response letters:

• January 23, 1996 (initial ruling): The Commission treated PPV, the free-to-guest channels, and the video game service all the same as satellite/cable transmissions -- not taxable, so long as the guest was only receiving a television signal. It reasoned that Utah's telephone-service sales tax (§ 59-12-103(1)(b)(ii)) had been interpreted narrowly to exclude television transmissions, and applied the same logic the Commission used for satellite/cable companies. It flagged one exception: if the hotel actually rents a video or CD-ROM to a guest, that rental charge is taxable.
• March 11, 1996 (reversed position for videocassette-based PPV): In several near-identical letters sent after hotel/motel industry groups shared the January ruling and asked follow-up questions, the Commission changed course specifically for the videocassette-delivered service: placing a video in an in-hotel machine and broadcasting it to a guest's room is no different from renting a video from a video store -- a taxable rental of tangible personal property -- regardless of whether the machine sits in the guest's room or elsewhere in the hotel. Satellite/cable-delivered programming stayed nontaxable.
• May 24, 1996 (final, controlling ruling, responding to the company's request for reconsideration): The company pushed back hard on the March ruling, arguing under Utah's UCC-based definition of "lease" (§ 70A-2a-103(1)(j)) and case law (Snarr Advertising, Broadcast International) that because it never transfers physical possession or control of its videocassettes -- they stay locked up, guests can't rewind, stop, or handle the tape -- the "essence of the transaction" is a nontaxable service, not a taxable lease/rental. The Commission reviewed its prior rulings and declined to change its position: the videocassette-based service remains taxable. But it shifted its reasoning rather than directly rebutting the lease-definition argument -- the new rationale was that the videotape is tangible personal property physically present in Utah, distinguishing it from satellite and cable transmissions, which the Commission treated as interstate transmissions that Utah law, as then written, did not reach. The Commission also clarified the transaction structure: because the company pays the hotel a fee to place its equipment (rather than the hotel renting equipment as the "consumer"), the hotel is not itself a taxable consumer -- it's a collection agent. The taxable transaction is between the company and the guest, and the guest is the final consumer, just as with a video-store rental.

On the remittance question, the Commission concluded the out-of-state PPV company itself -- not the hotel -- is the "vendor" under § 59-12-102(22)(a) responsible for ultimately remitting the tax to the state, since the company sells the service directly to the guest and the hotel merely bills and collects on the company's behalf, holding the fees in trust before forwarding them. The hotel, as the company's agent, must still collect the tax from the guest at the time of payment; whether the hotel also handles filing the returns depends on the private agreement between the two, but if the hotel won't do that, the company must file directly (and needs its own Utah sales tax license).

What this means for you

Hotels, motels, and in-room entertainment vendors

The physical-location-of-the-media distinction is the crux of this ruling: content delivered from a videotape or disc physically present in Utah is a taxable rental, while a satellite or cable signal is treated as a nontaxable interstate transmission (at least under the law as it stood in 1996). If your in-room entertainment system uses local physical media (even briefly, inside a locked machine the guest never touches), expect the transaction to be taxed differently than if the same content arrived by broadcast signal.

Out-of-state vendors placing equipment in Utah hotels for a commission

Structuring the deal as "we pay the hotel a fee to host our equipment, and the hotel collects on our behalf" (rather than "the hotel rents our equipment and resells the service") puts the remittance obligation on the out-of-state vendor as the "vendor" under Utah law, with the hotel acting only as its billing/collection agent. Get your vendor-hotel agreement's tax-collection and remittance responsibilities spelled out clearly, since this ruling shows the state will look past the labels the parties themselves use to figure out who the substantive vendor is.

Businesses relying on a "essence of the transaction is a service" argument

Even a well-supported legal argument -- citing the actual UCC lease definition and on-point Utah and out-of-state case law about who has "possession, operation, or use" of equipment -- didn't move the Commission here. It's worth noting for future disputes that the Commission's final letter shifted its rationale (from a lease-definition question to a physical-presence/interstate-transmission distinction) rather than directly engaging with the taxpayer's strongest argument, which is useful context for how much weight to give a Commission position that changes its stated reasoning between letters.

Accountants and tax professionals

Flag the reasoning shift for clients: the Commission's ultimate rule (physically-present-media = taxable; interstate transmission = not, subject to a pending legislative telecommunications study) is a narrower and more defensible administrative line than the initial "narrow reading of the telephone-service rule" approach from the January letter. Also worth double-checking: whether Utah's later telecommunications-specific statutes (following the study the Commission referenced) changed this satellite/cable treatment.

Common questions

Q: Is hotel pay-per-view video service taxable in Utah?
A: Under this ruling's final position, yes, if the video is delivered from a physical videocassette (or similar local media) housed in an in-hotel machine -- that's treated as a taxable rental of tangible personal property, just like a video-store rental.

Q: Is free-to-guest cable or satellite TV in hotel rooms taxable the same way?
A: No -- the Commission treated satellite/cable transmissions as nontaxable interstate transmissions, distinct from videocassette-based delivery, under the law as it stood in 1996.

Q: Does it matter that the taxpayer never gives the guest physical possession of the videocassette?
A: The taxpayer argued exactly that (citing UCC lease-definition and case law), but the Commission's final letter didn't accept it -- it reaffirmed the service was taxable, basing its final reasoning on the videotape's physical presence in Utah rather than directly rebutting the lease-definition argument.

Q: Who has to remit the sales tax to the state -- the hotel or the out-of-state PPV vendor?
A: The out-of-state vendor is the "vendor" responsible for ultimately remitting the tax, since it sells the service directly to the guest. The hotel, as the vendor's billing/collection agent, must still collect the tax from the guest at time of payment.

Q: Does this ruling apply to my company's in-room entertainment or media service?
A: Not automatically. It's a private letter ruling binding only on the Commission for the taxpayer and facts described, its own position changed twice within a few months, and it's a 1996-era ruling predating whatever telecommunications-specific statutes Utah later adopted. Consult a Utah tax professional and verify current law.

Citations and references

Statutes, rules, and cases (1996-era numbering -- since renumbered/amended; verify current telecommunications and TPP-rental tax rules):

• Utah Code Ann. § 59-12-103(1)(b)(ii) (intrastate telephone service tax) and Rule R865-19S-103 (telephone service definition, narrowly construed)
• Utah Code Ann. § 59-12-103(1)(m) (leases and rentals of tangible personal property)
• Utah Code Ann. § 70A-2a-103(1)(j) (UCC definition of "lease") and Rule R865-19S-32(A)
• Utah Code Ann. § 59-12-102(10)(e) (definition of "sale," including certain lease/contract-for-use transactions)
• Utah Code Ann. §§ 59-12-107(1)(a) and 59-12-102(22)(a) (vendor's duty to collect/remit; definition of "vendor")
• Snarr Advertising, Inc. v. Utah State Tax Commission, 432 P.2d 882 (Utah 1967)
• Broadcast International, Inc. v. Utah State Tax Commission, 882 P.2d 691 (Utah App. 1994)
• White v. Storer Cable Communications, 507 So.2d 964 (Ala. Civ. App. 1987) (taxpayer's cited authority; not expressly addressed in the Commission's final letter)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original page: https://files.tax.utah.gov/tax/commission/ruling/96-010.htm

Original ruling text

96-010

Responses
January 23, 1996 and March 11, 1996 and May 24, 1996

Request

RE:
Request for sales tax ruling.

Dear
Tax Advisor:

XXXXX
(XXXXX) hereby requests a ruling as to whether the services described below are
subject to Utah sales tax.

1. Pay Per View Service

XXXXX
provides, to hotel guests, a pay-per-view video entertainment service on
television sets in hotel rooms (�PPV Service�).

The
PPV Service is provided by means of a �PPV System� in the hotel, consisting of
a central control unit linked by wire to the television sets in the hotel
rooms. The control unit contains a rack
of video cassette players (VCPs), a computer and other electronic
equipment. The hotel provides space for
the installation of the PPV system, which is owned, installed and maintained by
XXXXX, and is solely under the control of XXXXX.

The
guest selects a movie from a menu of available titles appearing on the
television screen. When the guest presses the corresponding number on the
television set's remote control, a specific VCP in the PPV System control unit
is electronically accessed and begins to run the tape of the movie. (In some smaller hotels the PPV System is
accessed by telephone through a PBX system rather than by the remote control.) The signal is carried to the television set
in the guest's room by wire.

The
agreement between XXXXX and the operator of the hotel provides that, based upon
daily information reported by the monitoring unit of the PPV System, the hotel,
on behalf of XXXXX, is to place a specified charge on the guest's hotel bill
for each movie viewed. The hotel
retains a specified percentage (e.g., 10%) of each charge collected and remits
the remainder to XXXXX monthly.

2.
__ Free to Guest Service__

XXXXX
may provide various channels of television programming (e.g., XXXXX) that are
delivered to the hotel by satellite or cable and are free to the hotel
guests. The hotel would pay a specific
monthly rate per room for this service.

3.
Video Game Service

XXXXX
may provide a selection of video games for the hotel guests. The games would be accessed via a game
controller in the hotel room and provided in a manner similar to the PPV
Service described above, except that CD-ROM players would be used instead of
VCP's.

Please
advise whether ( 1 ) any of the above services are subject to Utah sales tax,
and (2) if any of such services are taxable, whether the responsibility for
remitting the tax to the state is upon the hotel or XXXXX.

Your
prompt attention to these questions will be appreciated. If you need any further information, please
contact the undersigned.

Under
penalties of perjury, I declare that I have examined this request, including
accompanying documents, and to the best of my knowledge and belief, the facts
presented in support of the requested ruling are true, correct and complete.

Very
truly yours,

XXXXX

XXXXX

RE:
Advisory Opinion - Application of sales tax to hotel pay for view service

Dear
XXXXX

We
have received your request for an advisory opinion as to whether your company's
sales of pay-for-view television services are taxable. You may be interested to know that the Utah
State Legislature has hired a consultant to conduct an extensive study of tax
issues relating to the telecommunications fields. The outcome of the study may result in changes to the tax code
that will impact the tax status of your company's transactions in the future. In the meantime, we find as follows:

Section
59-12-103 (1) (b) (ii) imposes sales tax on intrastate telephone service. Telephone service is defined by Utah
Administrative Rule R865-19S-103 to include various types of transmissions by
wire, light waves or other electromagnetic means. Although the language of the rule seems to encompass television
transmissions, we have interpreted the rule narrowly to include only telephone
service. On that basis, we have advised
satellite and cable companies that transmissions to their customers are not
taxable transactions so long as they are stated separately from taxable
services on the customer's bill or invoice.
The same rule applies to pay for view services and video game service
offered to hotel customers if the customer is receiving only a television
signal. If the hotel rents videos or
CD-ROMs to its customers, such rental charges are taxable. Of course, the hotel must pay sales tax on
its purchase or lease of the videos and video equipment used to provide this
service.

Please
contact us again if you have further questions.

For
the Commission,

Alice
Shearer

Commissioner

Utah
State Tax Commission

Office
of the Commission

210
North 1950 West

Salt
Lake City, Utah 84134

Attention:
Ms. Alice Shearer

Commissioner

Dear
Ms. Shearer:

This
is in reply to your ruling letter dated March 11, 1996 , regarding the
applicability of Utah sales tax to the services provided by XXXXX (XXXXX).

We
ask you to reconsider the portion of the ruling in which you state that
�[w]hether the video is placed in a video machine in the customer's room or
elsewhere in the hotel, the transaction is taxable as a rental of tangible
personal property. �We believe that the
transaction is the sale of a nontaxable service, not a rental of tangible
personal property. However, if it
should be held that XXXXX's services are taxable, we also ask you to clarify
whether the responsibility for remission of the tax to the state would be upon
XXXXX or the hotel. The following
discussion explains our positions.

1. Taxability of Services.

Utah
Code Ann. 59-12-103 (1) (m) imposes a tax on the amount paid or charged for
�leases and rentals of tangible personal property.� The legal attributes of a �lease� are well established. �Lease�
is defined as �a transfer of the right to possession and use of goods for a
term in return for consideration.� Utah
Code Ann. �70A-2a-103 (j ) .

The
requirement that there must be a �transfer of the right to possession and use�
of the property for a transaction to constitute a lease clearly applies for
sales tax purposes. In Snarr
Advertising. Inc. v. Utah state Tax Commission, 432 P. 2d 882
(1967), the Utah Supreme court stated:

We
think the Legislature meant to tax those pieces of personal property the
possession or use of which was given over to the lessee. 432 P. 2d at 884.

Likewise,
U.A.C. R865-19S-32 (A) states that the sales tax applies �[w]hen a lessee has
the right to possession, operation, or use of tangible personal property.�

Under
the typical agreement between XXXXX and the hotel operator (the �Agreement� ),
the right to possession and use of the video cassettes remains entirely in
XXXXX. The Agreement provides that the
video cassettes must be kept under lock and key provided by XXXXX and are not
accessible, even to the hotel's staff, without XXXXX's prior consent. The hotel operator must use reasonable
efforts to prevent any person under its control from duplicating or altering
the cassettes, and must report promptly to XXXXX any unauthorized use of the
cassettes of which it becomes aware.

Because
both the actual physical possession and the right to possession, operation and
use of the video cassettes remain totally in XXXXX, and are never transferred
to the hotel guest, the transaction between XXXXX and the guest cannot be a
lease. Rather, the transaction is a
sale of a nontaxable service.

In
Broadcast International. Inc. v. Utah state Tax Commission, 882 P.2d 691
(Utah App. 1994), the taxpayer provided services (e.q. , background
music, in-store advertising, electronic mail, video conferencing, stock and
commodity quotes, check verification and credit card services) to retail
businesses over a private satellite network.
The issue was whether the purchases by the taxpayer of the equipment
installed at a subscriber's location in order to provide the services were
purchases for �resale� and thus exempt from taxation. The taxpayer argued that the purchases were for �resale� because
the transaction between the taxpayer and the subscriber was a �sale� within the
meaning of Utah Code 59-12-102(10) (e).
That section defines �sale� to include �any transaction under which
right to possession, operation or use of any article of tangible personal property
is granted under a lease or contract and the transfer of possession would be
taxable if an outright sale were made.
�The court said:

. . [w]e must
determine whether the essence of the transaction is an exchange for services or
for tangible personal property, because the sale of services is generally not
taxable...However, such a determination depends on whether the services
provided are incidental to the personal property that is at the heart of the
transaction, or whether the personal property is incidental to the services for
which the parties bargained.

In
the case before us, the essence of the transaction was the sale of
services. Subscribers paid Broadcast
for access to the satellite network and related benefits, not to buy equipment
. . . Thus, Broadcast provided a service for which sales tax could not be
assessed against its subscribers.
882 P. 2d at 697-98 (Emphasis added. )

The
situation is the same here. The
�essence of the transaction is an exchange for services, � not �for tangible
personal property.�

An
Alabama case also is on point. In White v. Storer Cable Communications,
507 So.2d 964 (Ala. Civ. App. 1987) , the court held that a cable television
company was not �leasing or renting� its convertor boxes located at
subscribers' premises. It said that the
�substance of the transaction was cable service; the convertors were merely a
means serving that end.�

The
situation is the same under Utah law.
Your March 11 letter concedes that if a cable or satellite television
company provides video programming service to hotel guests, the charges for
such service would not be taxable. This
would be true even though the company would place its equipment ( e.g.,
convertor boxes and remote controls) in the hotel room in order to facilitate the
service. Such equipment would not be
held to be �leased� or �rented� to the guest.
The �essence of the transaction� clearly would be the sale of a service;
the use of the equipment would be incidental to the service.

It
is even clearer that XXXXX' s transaction is not a lease or rental, because the
hotel guest has no physical possession of the video cassette. The cassette is not even located in the
hotel room. The guest cannot stop and
restart the cassette, rewind it or exercise any type of dominion over it. He or she does not care and may not even
know how the signal carrying the movie is delivered to the television set by the use of a video cassette, cable,
satellite or whatever. Clearly, the
transaction is the nontaxable sale of a service, not a taxable lease or rental
of tangible property.

2. Entity Remitting Tax.

If
it should be held that XXXXX's services are subject to the sales tax, it is not
clear from your ruling whether XXXXX Gr the hotel is the proper entity to remit
the tax to the state. We believe that
XXXXX provides its pay-per-view services directly to the hotel guests, not to
the hotel, and thus is the proper entity to remit the tax, for the reasons
discussed below.

The
Agreement between XXXXX and the hotel operator allows XXXXX to install its equipment
in the hotel in order to provide its pay-per-view service ( �PPV Service� ) to
the hotel guests. The Agreement also
requires the hotel to perform billing and collection services for XXXXX, by
providing that the hotel, �on behalf of XXXXX�, is to place a charge on the
guest's hotel bill for each movie viewed (�Movie Fee�). The hotel retains a specified percentage
(e.g., 10%) of each Movie Fee collected, as payment from XXXXX in compensation
for the services rendered to XXXXX as XXXXX's agent, and remits the remainder
to XXXXX. The Agreement further
provides that the �Movie Fees are the property of XXXXX and shall be held in
trust for XXXXX. �Under these
arrangements, XXXXX is not selling the PPV Service to the hotel, and the hotel
is not selling the service to the hotel guest.
XXXXX is selling the service directly to the guest; the hotel merely
acts as billing and collection agent for XXXXX.

Because
the parties regard XXXXX as the vendor of the service, the Agreement also provides
that �As directed by XXXXX, each hotel shall, on behalf of XXXXX, collect any
applicable taxes levied on or measured by the Movie Fee and shall remit all
such taxes to XXXXX for payment by XXXXX to the appropriate taxing
jurisdictions.�

Utah
Code Ann. �59-12-107(1) (a) requires the �vendor� to collect and remit the
taxes to the state. �Vendor� is defined
in Utah Code Ann. 59-12-102(22) (a) to include �any person receiving any
payment or consideration upon a sale of tangible personal property or any other
taxable item or service under Subsection 59-12-103 (1), or to whom such payment
or consideration is payable. �For the
reasons discussed above, we submit that XXXXX, not the hotel, is the
vendor under this definition.

If
XXXXX's services are held to be taxable, XXXXX recognizes and accepts its
responsibility, as the �vendor, � for remitting the taxes to the state. We believe that, in addition to being the
correct legal interpretation of the Agreement and the applicable statutes,
remission of the taxes by XXXXX would be advantageous to the state, because it
would allow the state to assure compliance by auditing one corporation, XXXXX,
rather than numerous individual hotel operators.

3. Conclusion.

For
these reasons, we respectfully request that you reconsider your earlier ruling
and issue a revised ruling stating that XXXXX' s services are not subject to
sales tax. However, if you rule that
the services are taxable, we request a further ruling that XXXXX is the
property entity to remit the applicable sales taxes to the state.

Thank
you for your attention to this matter.

Very
truly yours,

XXXXX

XXXXX

RE:
Application of sales tax to charges for pay-per-view services

Dear
XXXXX

In
February, we issued an advisory opinion to XXXXX regarding the application of
sales tax; to pay for view movies shown in hotels and motels. XXXXX, in turn, shared that advisory opinion
with a number of hotel or motel proprietors.
Consequently, the Tax Commission has received a number of inquiries
about this issue because the advisory opinion appears to conflict with
information published in a Tax Commission publication entitled Tourist
Facilities; Utah Tax Information. This
letter is to clarify the Commission's position on charges for pay-per-view
videos.

In
our discussions with representatives of the hotel and motel industry, we have
learned that the technology used to deliver movies to guest rooms may vary from
one facility to the next. Whether the charge for in-room movies is taxable
turns on the manner in which it is delivered.

Some
tourist facilities use a technology which delivers movies to guest rooms via
satellite or cable t.v. transmission.
Because subscription charges for cable and satellite charges are not taxable,
the charges for in-room videos delivered in this manner are not taxable.

Other
tourist facilities are using technology which requires that a video be placed
in a video machine in the facility hotel or motel facility. When activated on request of the guest, the
machine starts the video and broadcasts the video to the guest's room. This transaction is no different from a
transaction in which a customer rents a video from a video store. Whether the video is placed in a video
machine in the customer's room or elsewhere in the hotel, the transaction is
taxable as a rental of tangible personal property.

With
regard to sales tax collected so far, if a hotel or motel proprietor has
collected sales tax on tax exempt satellite or cable t.v. video services, the
tax must be remitted to the Tax Commission.
A guest can request a refund of that tax through regular refund
procedures.

Unfortunately,
the processes for updating the state' s tax code are no match for the
rapid-fire changes occurring in technological fields. Consequently, we often rely on taxpayer inquiries for cues that
our tax policies are in need of attention.
We also rely on your organization to help us disseminate tax policy
information that concerns the hotel and motel industry. We hope you will feel free to distribute
this information to your members.

For
the Commission,

Alice
Shearer

Commissioner

XXXXX

RE:
Application of sales tax to charges for pay-per-view services

Dear
XXXXX

In
February, we issued an advisory opinion to XXXXX regarding the application of
sales tax to pay for view movies shown in hotels and motels. XXXXX, in turn, shared that advisory opinion
with a number of hotel or motel proprietors.
Consequently, the Tax Commission has received a number of inquiries
about this issue because the advisory opinion appears to conflict with
information published in a Tax Commission publication entitled Tourist
Facilities; Utah Tax Information. This
letter is to clarify the Commission' s position on charges for pay-per-view
videos.

In
our discussions with representatives of the hotel and motel industry, we have
learned that the technology used to deliver movies to guest rooms may vary from
one facility to the next. Whether the charge for in-room movies is taxable turns
on the manner in which it is delivered.

Some
tourist facilities use a technology which delivers movies to guest rooms via
satellite or cable t.v. transmission.
Because subscription charges for cable and satellite charges are not
taxable, the charges for in-room videos delivered in this manner are not
taxable.

Other
tourist facilities are using technology which requires that a video be placed
in a video machine in the facility hotel or motel facility. When activated on request of the guest, the machine
starts the video and broadcasts the video to the guest's room. This transaction is no different from a
transaction in which a Customer rents a video from a video store. Whether the video is placed in a video
machine in the customer�s room or elsewhere in the hotel, the transaction is
taxable as a rental of tangible personal property.

Unfortunately,
the processes for updating the state's tax code are no match for the rapid-fire
changes occurring in technological fields.
Consequently, we often rely on taxpayer inquiries for cues that our tax
policies are in need of attention. We
appreciate your willingness to provide us with information to help us
understand this issue. We hope this
letter resolves any confusion created by our January 23 advisory opinion to
XXXXX.

For
the Commission,

Alice
Shearer

Commissioner

XXXXX

RE:
Application of sales tax to charges for pay-per-view services

Dear
XXXXX

In
February, we issued an advisory opinion to XXXXX regarding the application of
sales tax to pay for view movies shown in hotels and motels. XXXXX, in turn, shared that advisory opinion
with a number of hotel or motel proprietors.
Consequently, the Tax Commission has received a number of inquiries
about this issue because the advisory opinion appears to conflict with
information published in a Tax Commission publication entitled Tourist
Facilities; Utah Tax Information. This
letter is to clarify the Commission's position on charges for pay-per-view
videos.

In
our discussions with representatives of the hotel and motel industry, we have
learned that the technology used to deliver movies to guest rooms may vary from
one facility to the next. Whether the charge for in-room movies is taxable
turns on the manner in which it is delivered.

Some
tourist facilities use a technology which delivers movies to guest rooms via
satellite or cable t.v. transmission.
Because subscription charges for cable and satellite charges are not
taxable, the charges for in-room videos delivered in this manner are not
taxable.

Other
tourist facilities are using technology which requires that a video be placed
in a video machine in the facility hotel or motel facility. When activated on request of the guest, the
machine starts the video and broadcasts the video to the guest's room. This transaction is no different from a
transaction in which a customer rents a video from a video store. Whether the video is placed in a video
machine in the Customer's room or elsewhere in the hotel, the transaction is
taxable as a rental of tangible personal property.

Unfortunately,
the processes for updating the state's tax code are no match for the rapid-fire
changes occurring in technological fields.
Consequently, we often rely on taxpayer inquiries for cues that our tax
policies are in need of attention. We
appreciate your willingness to provide us with information to help us
understand this issue. We hope this
letter resolves any confusion created by our January 23 advisory opinion to
XXXXX.

For
the Commission,

Alice
Shearer

Commissioner

XXXXX

RE:
Advisory Opinion date January 23, 1996

Dear
XXXXX

In
February, we issued an advisory opinion to XXXXX regarding the application of
sales tax to pay for view movies shown in hotels and motels. XXXXX, in turn, shared that advisory opinion
with a number of hotel or motel proprietors.
Consequently, the Tax Commission has received a number of inquiries
about this issue because the advisory opinion appears to conflict with
information published in a Tax Commission publication entitled Tourist
Facilities; Utah Tax Information. This
letter is to clarify the Commission's position on charges for pay-per-view
videos.

Other
tourist facilities are using technology which requires that a video be placed
in a video machine in the facility hotel or motel facility. When activated on request of the guest, the
machine starts the video and broadcasts the video to the guest' s room. This transaction is no different from a
transaction in which a customer rents a video from a video store. Whether the video is placed in a video
machine in the Customer�s room or elsewhere in the hotel, the transaction is
taxable as a rental of tangible personal property.

With
regard to sales tax collected so far, if a hotel or motel proprietor has
collected sales tax on tax exempt satellite or cable t.v. video services, the
tax must be remitted to the Tax Commission. A guest can request a refund of
that tax through regular refund procedures.

Unfortunately,
the processes at work in updating the state's tax code are no match for the
rapid- fire changes occurring in telecommunications technology. Consequently, we rely on taxpayer inquiries
like yours for important cues that our tax policies are lagging behind and need
attention. We appreciate your raising the issue, and we hope this letter clears
up any confusion surrounding our advisory opinion of January 23, 1996

For
the Commission,

Alice
Shearer

Commissioner

XXXXX

RE:
Application of sales tax to charges for pay-per-view services

Dear
XXXXX,

In
February, we issued an advisory opinion to XXXXX regarding the application of
sales tax to pay for view movies shown in hotels and motels. XXXXX, in turn,
shared that advisory opinion with a number of hotel or motel proprietors. Consequently, the Tax Commission has
received a number of inquiries about this issue because the advisory opinion
appears to conflict with information published in a Tax Commission publication
entitled Tourist Facilities; Utah Tax Information. This letter is to clarify the Commission's position on charges
for pay-per-view videos.

Other
tourist facilities are using technology which requires that a video be placed
in a video machine in the facility hotel or motel facility. When activated on request of the guest, the
machine starts the video and broadcasts the video to the guests room. This transaction is no different from a
transaction in which a customer rents a video from a video store. Whether the video is placed in a video
machine in the customer's room or elsewhere in the hotel, the transaction is
taxable as a rental of tangible personal property.

With
regard to sales tax collected so far, if a hotel or motel proprietor has
collected sales tax on tax exempt satellite or cable t.v video services, the
tax must be remitted to the Tax Commission. A guest can request a refund of
that tax through regular refund procedures.

Unfortunately,
the processes for updating the state's tax code are no match for the rapid-fire
changes occurring in technological fields.
Consequently, we often rely on taxpayer inquiries for Cues that our tax
policies are in need of attention. We
also rely on your organization to help us disseminate tax policy information
that concerns the tourist industry. We
hope you will feel free to distribute this information to Utah tourist
facilities.

For
the Commission,

Alice
Shearer

Commissioner

XXXXX

Re:
Review of opinion letter issued March 11, 1996

Dear
XXXXX,

We
have received your request for reconsideration of our March 11 ruling
pertaining to charges by hotels, motels or other guest facilities for video
broadcasts. We have reviewed our prior
rulings on this matter and declined to change our position. However, you have presented additional facts
that require further clarification.

Taxable
rentals/leases

Utah
imposes sales tax on charges for the rental or lease of tangible personal
property. For instance, if a hotel
rented videos and video playing and broadcasting equipment from XXXXX, the
hotel would be required to pay sales tax on the rental charges associated with
the playback and broadcast equipment.
The hotel would also be required to pay sales tax on rental of the
videos if the hotel was considered the final consumer of those items. However, if the hotel rented the videos,
then, in turn, charged it guests for use of the videos, the guest would be considered
the final taxable consumer. In that
case, the hotel could rent the videos tax free from XXXXX under our resale
exemption, but it would be required to collect the sales tax from its customer.

The
arrangement between XXXXX and its customers appears to be a different
arrangement than the arrangement described above. XXXXX pays the hotel a fee or commission for the privilege of
placing its video players and associated equipment in a hotel. The hotel is not
a consumer, but a collection agent. The
transaction between XXXXX and the hotel is not a taxable event. However, the transaction between XXXXX and
the room guest is a taxable transaction.
The use of the video by the guest is akin to any other video rental from
a video store. The fact that the video
tape is placed in a video player by a hotel employee rather than by the room
guest does not change the nature of the transaction. The hotel, as XXXXX's
agent, must collect sales tax on this charge.

We
have made a distinction between charges for video rental and charges for
in-room broadcasts transmitted via satellite or cable television. Satellite and cable transmission are
generally interstate transmissions. As
currently written, Utah law does not allow for taxation of interstate
transmissions. By contrast, the video
broadcasts of the type in question here arise from video tapes which are
present in Utah. As such, they are
taxable. An additional note with regard
to satellite and cable transmissions: the state legislature has commissioned a
study of the entire telecommunications industry. The tax status of these transmissions may change in the future as
a result of that study.

Collecting
and remitting sales tax

As
the vendor, XXXXX is ultimately responsible for remitting the sales tax to the
Tax Commission. The hotel, as your
agent, must collect sales tax from the customer at the time of payment. Whether the hotel is also responsible for
completing sales tax returns and remitting the sales tax on behalf of your
company depends upon your agreement with the hotel. If the hotel does not agree to remit the tax and file the
returns, XXXXX must do so. If your
company does not already have a sales tax license, please use the enclosed form
to apply for one.

Our
staff in Compliance Auditing will contact you to answer any questions that you
have pertaining to sales tax due on past transactions.

For
the Commission,

Alice
Shearer,

Commissioner