Were hotel charges for in-room pay-per-view movies taxable, and did that activity require a seller's permit?

Plain-English summary

A hotel contracted with a provider that installed equipment and supplied movie cassettes. Hotel staff loaded the cassettes, and guests paid to watch movies by tuning the television in their room to the appropriate channel.

The letter found the guest charges nontaxable because the guests received possession of no tangible personal property. The hotel therefore did not need a seller's permit for this movie-viewing activity, although the source did not decide whether other hotel activities required one.

The provider's lease of equipment and cassettes to the hotel was separately taxable unless the provider had paid tax measured by purchase price and leased the property in the same form it acquired it.

Citations and references

• California Revenue and Taxation Code §§ 6006 and 6010

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 540.0332
• Original supporting opinion: 540.0332 PDF

Original ruling text

540.0332

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
(916) 445-6493
November 24, 1986

movies provided to hotel guests
In your September 25, 1986 letter to the Board’s legal staff, you enclosed for our review a copy of your agreement with __, dated December 19, 1985, your application to the Board for a seller’s permit, and a brochure which lists for hotel guest viewers the _ movies available on your hotel’s television equipment. Your agreement with calls for to install certain equipment on the hotel’s premises for use in showing movies to hotel guests over the hotel’s television system. The movies, on cassettes, will be provided by to the hotel, loaded into the equipment by the hotel, and viewed by the guests in their hotel rooms on a pay-per-view basis by tuning the guest room’s television to the appropriate channel. On your seller’s permit application, the type or nature of business states is, “in-house movies.” Your question is whether this permit is a necessity. We interpret your letter to raise the question of whether your showing these movies to your hotel guests is a taxable transaction. Opinion Our opinion is that tax does not apply to your charges to your guests for viewing these movies. This is because there is no tangible personal property transferred to the hotel guests. Instead, they merely tune the hotel’s television set to the channel on which the movies are showing. Under the Sales and Use Tax Law, a taxable sale or lease requires the transfer of tangible personal property and, in this instance, the hotel guest has not received possession of any tangible personal property. Tax will apply only to lease of the equipment and the cassettes to the hotel, unless ___ has paid tax measured by the purchase price and leased the equipment and cassettes in the same form as it acquired them. Revenue and Taxation Code Section 6006, 6010. Accordingly, you need not hold a seller’s permit for the activity of showing in-room movies to the hotel’s guests. We cannot, of course, say whether or not you are required to hold a seller’s permit for any other activities. Sincerely,

John Abbott
Tax Counsel