Which banquet and event charges — guarantees, room setup, extra labor, off-site fees, below-minimum fees, IT/router, electricity, and audiovisual rentals — does Colorado sales tax apply to?

Plain-English summary

A banquet and event provider asked how Colorado sales tax applies to nine different charges. The Department's organizing principle: Colorado taxes retail sales of tangible personal property and a few enumerated items (including meals served by restaurants, hotels, and caterers, and lodging), but not services in general. The catch is that a charge inseparable from a taxable meal gets pulled into the taxable price even if separately stated. Here's how the items sorted out:

• Guarantee charges / banquet rooms. A banquet room is not taxable lodging if used exclusively for dining or for non-lodging purposes (and the room charge can't be a disguised food charge — if you can rent the room without buying food, it's likely not taxable). But if a taxable-use event is canceled and a cancellation fee is charged, tax applies when the fee is greater than 50% of the banquet room rate (SR-22).
• Room setup fees and "excessive labor" fees. Taxable when they relate to catering prepared meals. A restaurant can't break out the labor to prepare and serve meals to avoid tax on it; extra waiters, cooks, dishwashers, etc., are integral to catering, so the fees — even if separately stated — are part of the taxable charge.
• Off-site fees (serving at a location other than the hotel). Taxable if the hotel charges for the space, because a restaurant's charge for space is inseparable from providing the meal. Not taxable if a third party charges for the space directly — but if the hotel pays the third party and passes the cost to the guest, it's back in the tax calculation, like a hotel-owned room.
• Below-minimum fees (a charge when the event doesn't hit the minimum). Taxable if tied to the catering service — e.g., a $30/dinner with a 20-guest minimum; the shortfall is taxed as part of the taxable meal.
• IT lines and routers. Turns on control: the Department treats a charge for use of property as a taxable rental only if the consumer has significant control; if the vendor keeps primary control, the vendor is the consumer. Here the Department would likely treat guest charges as a non-taxable service, with the provider paying tax on the IT lines/router it uses.
• Electricity (special connection for a laptop or exhibit table). If the vendor controls the connection (especially keeping it after the guest's use), the vendor is the consumer — non-taxable to the guest — but the charge may be taxable to the extent it involves tangible items like extension cords or surge protectors.
• Audio/visual equipment (and the 20% A/V fee). Likely a taxable rental of tangible personal property, because the consumer presumably controls the equipment. Whoever collects the charge must collect and remit the tax.
• Tips/gratuity (noted in passing). Generally not in the tax base unless they are not optional (mandatory gratuities are taxable) (SR-13).

What this means for you

Hotels, caterers, and event venues

Charges that are part of putting a catered meal on the table — setup, extra service labor, below-minimum shortfalls, and off-site space you bill for — are taxable, and separately stating them doesn't make them non-taxable, because they're inseparable from the meal. A/V equipment rentals are taxable; collect and remit. For IT/router and special electrical charges, whether you owe tax turns on who controls the equipment: if you keep control, you're the consumer (pay tax on your inputs) and the guest charge is a service — but watch out for any tangible items (cords, surge protectors) that can make part of it taxable.

Event hosts and planners booking these services

Expect tax on catering-related line items and A/V rentals; a pure meeting/banquet room used only for dining shouldn't carry lodging tax. A cancellation fee can be taxable if it exceeds 50% of the room rate. Mandatory (non-optional) gratuities are taxable; truly optional tips are not.

Accountants and tax professionals

The meal-inseparability rule (§ 39-26-104(1)(e); the restaurant can't carve out labor) drives the setup/labor/off-site/below-minimum results. The IT/electricity analysis applies the control test for rental-vs-service, and A/V is treated as a rental because the customer controls it. SR-22 governs the 50% cancellation rule and the dining-room exclusion; SR-13 governs gratuities.

Common questions

Q: Are banquet room setup and extra-labor fees taxable?
A: Yes, when they relate to catering prepared meals. They're integral to the catered meal and taxable even if separately stated.

Q: Is the banquet room itself taxed like a hotel room?
A: Not if it's used exclusively for dining (or non-lodging purposes) and isn't a disguised food charge. A cancellation fee is taxable only if it's more than 50% of the room rate.

Q: Are audiovisual equipment rentals taxable?
A: Yes — the Department treats them as a taxable rental of tangible personal property, because the customer controls the equipment. The collector must remit the tax.

Q: What about charges for IT lines, routers, or special electrical connections?
A: Usually non-taxable services if the vendor keeps control of the equipment (the vendor then pays tax as the consumer). But any tangible items provided — extension cords, surge protectors — can make part of the charge taxable.

Q: Are gratuities taxable?
A: Optional tips generally aren't in the tax base; mandatory (non-optional) gratuities are taxable.

Q: Can I rely on this letter?
A: No. A General Information Letter is general guidance and is not binding on the Department; it makes no determination on any specific facts, and it uses "likely/presumably" language. It also doesn't cover self-collected home-rule city taxes.

Citations and references

Statutes and rules:
- § 39-26-104, C.R.S. (imposition of sales tax; services generally not taxed)
- § 39-26-104(1)(e), C.R.S. (meals served by restaurants, hotels, caterers)
- 1 CCR 201-5, Special Regulation 22 (lodging/banquet rooms; 50% cancellation rule; dining-room exclusion)
- 1 CCR 201-5, Special Regulation 13 (gratuities; optional vs. mandatory)

Source

• Landing page: Colorado Sales & Use Tax Letter Rulings
• Original PDF: GIL-15-010.pdf

Original ruling text

Office of Tax Policy, P.O. Box 17087, Denver, CO 80217-0087 ([email protected])

GIL-15-010 — April 16, 2015

Re: Banquet and Event Provider Charges

You submitted on behalf of your client (the "Company") a request for guidance to determine the taxability of certain banquet and event provider charges. […] The Department initially treats your request as one of a general information letter.

Issue — Are the following subject to Colorado sales or use tax: (1) Guarantee charges; (2) Room set up fees; (3) Excessive labor fees (services of additional personnel required for an event); (4) Off-site fees (delivery and set up at a non-banquet location, but still at the host's property); (5) Below minimum fees (fees charged if the event does not meet the minimum requirement); (6) IT lines and router use fees; (7) Electricity (charged to groups requesting a special electrical connection such as electric for a laptop or at an exhibit table); (8) Audio visual service fee (20% fee on all audiovisual equipment rentals); (9) Chef and server fees.

Discussion

Guarantee Charges. Colorado levies sales tax on the retail sale of tangible personal property, but does not generally tax services. Colorado levies sales tax on the rental of hotel room and similar living accommodations. Banquet rooms in hotels are not subject to tax if they are exclusively used for dining or are used for purposes other than taxable living accommodations. If the banquet room is used in a taxable manner, the event is canceled, and the hotel or vendor charges a cancellation fee, tax applies when the cancellation charge is greater than fifty percent of the banquet room rate. [The banquet room charge cannot be a disguised food charge. If one can rent a banquet room without purchasing food or incurring a food charge, then the banquet room is likely not subject to tax. 1 CCR 201-5, Special Regulation 22.]

Room set up and excessive labor fee. Colorado levies sales tax on the provision of meals served in restaurants, hotels, and by caterer. [§ 39-26-104(1)(e), C.R.S.] The price of a meal at a restaurant includes a wide variety of cost components, including the cost of the food and the labor to prepare and serve meals. A restaurant cannot separately state the charges for these cost components and only apply tax to the food and not to the labor components. […] Charges for banquet room set up and for extra labor are taxable if they relate to the catering of prepared meals. For example, labor fees for extra waiters, service persons, cooks, and dishwashers are integral aspects of catering service and fees, even if separately stated, would likely be part of a taxable charge of a caterer. [However, tips and gratuity are generally not included in the sales tax calculation unless they are not optional. 1 CCR 201-5, Special Regulation 13.]

Off site fees. We understand off site fees to be charges relating to serving meals at a location other than the hotel. As in the case of room set up fees, this charge is included in the sale tax calculation because a restaurant's charge for space is inseparable from the provision of the meal. However, if the charge for off site location is a charge by a third party for the space and not a charge by the hotel then the charge is not included. However, if the hotel pays the third party and the hotel passes the cost on to the guest, then the charge is included in the tax calculation as would the cost of a banquet room owned by the hotel.

Below minimum fees. We understand a below minimum fee to be the smallest charge for the provisioning of a banquet room, meals, and other costs. This fee is taxable if it relates to the catering service. For example, if the hotel charges $30 per dinner, but requires a minimum of 20 guests, then the below minimum fee is taxable as part of the taxable meal.

IT lines and routers. There are a variety of factors that the Department considers when determining whether a charge is for the taxable rental of tangible personal property or nontaxable services. In general, the Department will view a charge for the use of tangible personal property as a taxable rental charge if the consumer has significant control over the property. If the vendor is primarily in control of the property, then the vendor will likely be viewed as the consumer of the use of the property. The Department will likely view charges to guests for such services as non-taxable service and require the provider pay tax to the provider of the IT lines and router.

Electricity. If the vendor is supplying a special electrical connection, then the Department will likely view the vendor as the consumer if the vendor has primary control over the connection, particularly if the vendor retains the connection after use by the guest. However, this charge may be taxable to the extent it relates to tangible personal property such as extension cords or surge protectors, etc.

Charges for audio / visual equipment. The Department would likely view this as the taxable rental of tangible personal property because the consumer presumably is in control of the equipment. The person collecting the charge will have the obligation to collect and remit the tax.

Miscellaneous

This letter represents the good faith opinion of Department personnel who are knowledgeable on state taxes issues. However, the Department does not make a specific determination here on any of the issues raised and the Department is not bound by this general information letter. The Department administers state and state-administered local sales and use taxes; this letter does not address sales and use taxes administered by home-rule cities and home-rule counties.

(Condensed from the official PDF; see the linked source for the complete text and footnotes.)