How did Virginia tax furnished apartment rentals shorter or longer than 90 days, and who paid tax on the furniture?

Subject

Furnished apartment stays under 90 days were taxable

Plain-English summary

The furnished-apartment provider had to register and collect Virginia sales tax on accommodations rented for fewer than 90 continuous days. A continuous stay of 90 days or more was not taxable.

For an open-ended lease renewed month to month, the provider had to collect tax during the initial period. If the stay extended beyond the 90-day threshold, the ruling directed the provider to refund or credit the tax collected for the first 90 days and stop collecting it going forward.

The provider was the taxable consumer of furniture, linens, carpeting, drapes, and other property used to outfit the apartments. Those items were taxable when purchased or rented by the provider rather than purchased for resale to guests.

What this means for you

• Track each guest's continuous occupancy, not merely the stated monthly lease term.
• Collect during an initially short or open-ended stay under the historical rule, then make the required correction if it becomes a qualifying long stay.
• Pay sales or use tax on apartment furnishings and supplies used to provide lodging.

Citations and references

• Va. Code §§ 58.1-603.4 and 58.1-602; 23 VAC 10-210-730 D.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 14-152

Original ruling text

August 28, 2014

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This will reply to your correspondence in which you request a ruling on the application of the Virginia retail sales and use tax to the leasing of furnished apartments on a short-term basis. I apologize for the delay in responding to your request.

FACTS

* (the "Taxpayer") is in the business of leasing furnished apartments to individuals. Generally, customers of the Taxpayer are seeking living accommodations for periods of one month or longer. The Taxpayer offers its customers an alternative to renting hotel rooms for long periods of time.

The Taxpayer requests clarification of the proper application of the Virginia retail sales and use tax to their operation. Specifically, the Taxpayer requests confirmation that it is considered the end-user of the apartments and subject to the sales or use tax on their rentals.

RULING

Virginia Code § 58.1-603.4 imposes the retail sales and use tax on "the gross proceeds derived from the sale or charge for rooms, lodgings, or accommodations furnished to transients as set out in the definition of "retail sale" in § 58.1-602." Virginia Code § 58.1­602 defines "retail sale", in part, as follows:

The terms "retail sale" and a "sale at retail" shall specifically include the following: (i) the sale or charges for any room or rooms, lodging, or accommodations furnished to transients for less than 90 continuous days by any hotel, motel, inn, tourist camp, tourist cabin, camping grounds, club, or any other place in which rooms, lodging, space, or accommodations are regularly furnished to transients for a consideration....

Based on the definition of retail sale and the provisions of Va. Code § 58.1-603.4, the Taxpayer is regularly engaged in the business of providing accommodations for less than 90 days to transients for a consideration and would be required to register as a dealer and collect and remit the sales tax on such accommodations. In accordance with the cited authorities, the Taxpayer would not be required to collect the sales tax on accommodations rented to customers for 90 continuous days or more.

Virginia law and policy is crafted in order to maintain a level playing field between hotels or motels and other providers of accommodations for less than 90 days. If the Taxpayer encounters situations where it enters into open-ended lease agreements that are renewed on a month-by-month basis, the Taxpayer is obligated to collect all sales taxes up to the 90th day. If the lease is extended beyond the 90th continuous day, the Taxpayer is also obligated to refund or credit all sales taxes paid by the customer for the first 90 days and should cease collecting the sales tax from the 90th day forward.

In addition, Title 23 of the Virginia Administrative Code 10-210-730 D addresses purchases made by hotels, motels, and other accommodations providers and sets out that purchases of furniture, linens, carpeting, drapes, and other tangible personal property are subject to the sales tax at the time of purchase. Therefore, as an accommodations provider, purchases or rentals of tangible personal property to furnish or outfit an apartment for lease or rental would be taxable to the Taxpayer at the time of purchase.

I trust that the foregoing responds to your inquiry. The Code of Virginia sections and regulation cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Laws, Rules, and Decisions section of the Department's website. If you have any questions concerning this ruling, please contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-5614840485.S