Is a hotel's mandatory amenity fee taxable, and who collects the tax when a middleman arranges the amenities?

Plain-English summary

A middleman company contracts with hotels to give guests amenities (golf, kayaking, ski lift tickets, etc.), and separately contracts with the amenity providers (golf courses, ski resorts) who actually deliver them. The hotel pays the middleman a flat "amenity fee" for each occupied night (whether or not the guest uses anything); the middleman pays the amenity providers. The hotel raises the room charge by the amenity fee, but it's not separately stated and the guest can't decline it. The company asked about three different money flows; the Department answered each.

1. The amenity fee charged to the guest IS taxable. Colorado taxes short-term living accommodations (under 30 days). When a retailer bundles taxable and nontaxable items into one price the customer can't split, tax is on the entire charge. Here taxable lodging is bundled with nontaxable amenities, and the guest can't buy them separately. Applying the true-object test, "the true object of the customer is a room or accommodation and not the amenity fee itself" — the amenity is just an amenity, not why the guest books the room. Because the guest can't get lodging without paying the fee, "it is part of the payment for lodging," so the whole charge is taxed as a living accommodation. (The Department contrasted cases like hunting lodges, where outfitter services dominate and the true object is the nontaxable service, allowing tax on only the taxable portion — PLR 10-001 — but said that approach isn't warranted here.)

2. Who remits — the lodging provider, not the amenity vendors. The company proposed having the amenity providers report and remit the tax. "This is not permitted under Colorado law." Sales-tax collection falls on the retailer, which here is the lodging provider (it makes the retail sale of taxable accommodations). So the lodging provider must report and remit the tax on the fee — the amenity providers cannot.

3. The downstream payments are NOT taxable. The amenity fee the hotel passes to the middleman isn't taxable, because the middleman is "providing a service to the hotel" — essentially a concierge service, arranging amenities — with no sale of tangible property. And the middleman's payment to the amenity providers isn't taxable either, because the amenities (green fees, ski passes) are services, and Colorado doesn't tax services. (Caveat: if an amenity is principally tangible property — the Department's example is a kayak — providing that property would be taxable.)

Because this is a private letter ruling, it binds the Department only as to this taxpayer and these facts and cannot be relied on by anyone else.

What this means for you

Hotels and lodging providers

A mandatory fee you build into the room price — even an "amenity" fee for golf or ski passes, and even if not separately stated — is part of the taxable room charge, and you (the retailer) must collect and remit the tax on it. You can't push that obligation onto a third-party amenity vendor. If you genuinely want a nontaxable add-on, it generally has to be optional and separable, and even then the true-object analysis matters.

Amenity aggregators / concierge middlemen

The fees you receive from hotels for arranging amenities are nontaxable services, and what you pay activity providers for services (green fees, lift tickets) is likewise untaxed. But if what you're really providing is tangible property (e.g., renting out kayaks), that piece can be taxable.

Accountants and tax professionals

Bundling rule: a single, non-separable charge mixing taxable lodging (§ 39-26-104(1)(f)) with nontaxable amenities is taxed in full when the true object is the taxable item; the minority approach taxing only the taxable portion (PLR 10-001, hunting-lodge/outfitter scenario) applies when the nontaxable item is the true object and the taxable item isn't insubstantial. Retailer-remits rule: § 39-26-105(1)(a)(I)(A); retailer defined at § 39-26-102(8), (9). Service vs. TPP caveat for kayak-type amenities.

Common questions

Q: Is a hotel amenity or resort fee taxable in Colorado? A: Yes, when it's mandatory and built into the room charge. It's treated as part of the taxable living-accommodation charge, even if it isn't separately stated, because the true object is the room.

Q: Can the amenity vendor collect and remit the tax instead of the hotel? A: No. Colorado law puts collection and remittance on the retailer — here, the lodging provider that sells the accommodations. The amenity providers can't report or pay that tax.

Q: Are the payments between the hotel, the middleman, and the activity providers taxable? A: No. The middleman is providing a nontaxable concierge-type service to the hotel, and payments for amenity services (green fees, ski passes) aren't taxed because they're services.

Q: What if the amenity is mostly equipment, like a kayak? A: If an amenity is principally the provision of tangible personal property, providing that property would be taxable — unlike a pure service.

Q: Can my hotel rely on this ruling?
A: No. A private letter ruling binds the Department only as to the taxpayer and facts it was issued to; it specifically isn't binding as to the lodging or amenity providers, and no one else can rely on it.

Q: Does this cover city sales tax or lodging tax?
A: No. The Department administers state and state-collected local taxes only; self-collected home-rule cities and counties (and local lodging taxes) set their own rules.

Citations and references

Statutes and references:

• § 39-26-104(1)(f), C.R.S. (sales tax on living accommodations of less than 30 consecutive days)
• § 39-26-102(11), C.R.S. (definition of rooms/accommodations)
• § 39-26-105(1)(a)(I)(A), C.R.S. (retailer's duty to collect and remit); § 39-26-102(8), (9), C.R.S. (definition of retailer)
• PLR 10-001 (bundled taxable/nontaxable charge; tax on only the taxable portion when the true object is the nontaxable item — e.g., outfitter services)

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/PLR-16-004.pdf

Original ruling text

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

PLR-16-004
April 6, 2016
XXXXXXXXXXXXX
Attn: XXXXXXXXX
XXXXXXXXXXXXX
XXXXXXXXXXXXX
Re: Amenity Fee
Dear XXXXXXXXXXXX,
You submitted on behalf of XXXXXXXXXXXXXXXX ("Company") a request for a private letter ruling to the Colorado Department of Revenue ("Department") pursuant to Department Regulation 24-35-103.5. This ruling is binding on the Department to the extent set forth in Department Rule 24-35-103.5.1 It cannot be relied upon by any taxpayer other than the taxpayer to whom the ruling is made. Issues

1. Is an amenity fee charged by a hotel or lodging provider to the customer subject to tax?
2. Is an amenity fee that is passed on from the hotel or lodging provider to Company
   subject to tax?
3. Is an amenity fee that is paid by Company to the amenity service provider subject to
   tax?
   Conclusion
4. The amenity fee is subject to tax because the amenity fee is included in the charge for
   taxable living accommodations.
5. The amenity fee that the hotel or lodging provider passes on to Company is not subject
   to tax because there is no sale or exchange of tangible personal property. Company is essentially providing a form of concierge services.
6. Amenities that are services are not subject to tax and, thus, the amount paid to the
   amenity service provider by Company is not subject to tax. Background Company contracts with hotels and other lodging providers to provide guests with a variety of services, such as golfing, kayaking, ski lift tickets, and other amenities. Company 1

Because this ruling is not addressed to the lodging provider or amenity service provider, this private letter ruling is not binding on the Department with respect to the lodging provider or amenity service provider. DR 4010A (06/1114)

contracts with golf courses, ski resorts and other entities that will actually provide these services ("amenity service providers"). The lodging provider will pay Company a flat fee ("amenity fee") for each occupied night, regardless of whether the amenities are used. Company will then pay the service amenity providers in accordance with the contract between the two entities. The lodging provider will increase the lodging charge by the amount of the amenity fee, but the amenity fee is not separately stated on the customer's invoice. The lodger/ customer does not have the option to not pay the amenity fee. Company is purely a middle man in these transactions because they do not provide or consume the service or amenity. Company proposes that the lodging provider will collect the sales tax on amenity fee and remit that amount to Company who will forward the tax to the amenity service providers and the amenity service provider will report and remit the tax. Structure of Analysis

1. Is the transaction between customer and the provider of living accommodations taxable
   under§ 39-26-104(1), C.R.S.?
   a. Is the item the taxable sale of a room or accommodation as defined in § 39-26102(11), C.R.S.? b. If the item is not purely taxable living accommodations, does the item contain both potentially taxable and nontaxable elements? i. If it contains both potentially taxable and nontaxable elements, are the nontaxable components and taxable components separable and separated? ii. What is the true object of the customer in the transaction?
2. Who must collect and remit the tax?
3. Is the provisioning of service or goods by the amenity service provider to customer a
   separate transaction from the provisioning of living accommodation to customer? a. How is tax calculated and collected? Discussion Colorado levies sales tax on the sale of living accommodations that are for less than thirty consecutive days.2 Colorado does not levy sales tax on most other services, including the amenity services identified in the request. However, when a retailer combines taxable and nontaxable services together and the consumer does not have the option of purchasing them separately, then sales tax is calculated on the entire charge.3 In this case, the first transaction at issue is taxable living accommodations bundled with nontaxable amenity services into one price. The guest does not have the option to purchase them separately. We next look at what the true object of the customer is. In this case, the true object of the 2

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2

§ 39-26-104(1}{f), C.R.S.
See, Hellerstein, State Taxation (WG&L), 1J17.12 (The Separate Statement Rule). Colorado Department of Revenue Private Letter Ruling (PLR) 10-001. The Department has permitted retailers who combine taxable and nontaxable items into a single charge to apply tax only to the taxable portion of a bundled charge when the ·true object" of the transaction is the non-taxable item but the taxable item is not insubstantial. For example, the Department has approved such a procedure for hunting lodges where the true object is the provisioning of outfitter services which are a very substantial, if not the dominant, part of the bundled charge in relation to the charge for living accommodations. The circumstances described in this ruling request do not suggest that such an approach is warranted in this case. DR 4010A (06/1114)

customer is a room or accommodation and not the amenity fee itself. The amenity fee is strictly, as the name suggests, an amenity and is not the reason the customer purchases a room or accommodation. Therefore, the entire charge is subject to tax as a living accommodation. Although Company considers the amenity fee included in the lodging price to be the payment of the amenity provided to the lodger or customer, the Department cannot view the amenity fee included in the lodging price as payment for the amenity used by the customer because the Department considers this fee payment for the lodging. The customer does not have the option to obtain lodging without payment of the fee; thus, it is part of the payment for lodging. Company proposes that the amenity service providers report and remit the tax. This is not permitted under Colorado law. Colorado law imposes sales tax collection and reporting on the retailer.4 The retailer is the person who makes a retail sale of a taxable goods or services.5 In this case, the lodging provider is the retailer because the lodging provider is selling taxable living accommodations. Therefore, the lodging provider is the entity responsible for reporting and remitting the tax on this fee to the Department. This tax cannot be reported or paid by the amenity service providers. Company also asks whether the amenity fee the hotel or lodging provider collects and passes on to Company is subject to tax. This transaction between the hotel or lodging provider and Company is not taxable because Company is providing a service to the hotel or lodging provider. Essentially Company is acting as a form of concierge service by agreeing to arrange for the provision of services to the hotel and lodging provider's customers. Lastly, Company asks whether their payment of the fee to the amenity service provider is subject to tax. Company represents that the amenities they provider are generally services.6 Colorado does not generally tax services; thus, the services outlined in the ruling request (green fees and ski passes) are not subject to tax because they are services. Miscellaneous This ruling applies only to sales and use taxes administered by the Department. Please note that the Department administers state and state-collected city and county sales taxes and special district sales and use taxes, but does not administer sales and use taxes for self-collected home rule cities and counties. You may wish to consult with local governments which administer their own sales or use taxes about the applicability of those taxes. Visit our web site at www.colorado.gov/tax for more information about state and local sales taxes. This ruling is premised on the assumption that Company has completely and accurately 4

§ 39-26-105(1)(a)(l)(A), C.R.S.
§ 39-26-102(8), (9), C.R.S.
6
Company represents that green fees and ski passes are examples of amenities that would be provided. These transactions are not taxable because they are services. Although we do not rule on the issue specifically, if the amenity is principally the provision of tangible personal property (kayak), the provision of such tangible personal property would be subject to tax. 5

3

DR 4010A (06/11/14)

disclosed all material facts. The Department reserves the right, among others, to independently evaluate Company's representations. The ruling is null and void if any such representation is incorrect and has a material bearing on the conclusions reached in this ruling and is subject to modification or revocation in accordance to Department Regulation 24-35-103.5. This ruling is binding on the Department to the extent set forth in Department Regulation 24-35-103.5. It cannot be relied upon by any taxpayer other than the taxpayer to whom the ruling is made. Enclosed is a redacted version of this ruling. Pursuant to statute and regulation, this redacted version of the ruling will be made public within 60 days of the date of this letter. Please let me know in writing within that 60 day period whether you have any suggestions or concerns about this redacted version of the ruling. Sincerely,

Office of Tax Policy
Colorado Department of Revenue
This ruling cannot be relied upon by any other taxpayer other than the taxpayer to whom the ruling is made.

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DR 4010A (06/11/14)