When a hotel guest pays a third-party vendor directly by in-room credit card reader for pay-per-view movies, who owes Connecticut sales tax, and does the room occupancy tax apply?

Plain-English summary

A company contracts with hotels to provide in-room pay-per-view (PPV) movies. It owns and maintains a central control unit at each hotel, sets the movie menu and prices, and pays the hotel a commission on its PPV proceeds. The company planned to install in-room credit card readers so guests could pay for a movie by swiping a card directly with the company — with the charge appearing on the guest's credit card bill, not the hotel folio. It asked DRS what sales tax and room occupancy tax obligations arise when guests pay the vendor directly this way.

DRS ruled on two taxes:

• Sales and use tax — applies, and the guest is the consumer. DRS had already held (in Ruling No. 95-6) that in-room movie services like these are taxable "community antenna television services" (CATV) under Conn. Gen. Stat. § 12-407(a)(27). When the guest charges the PPV fee to a credit card at the in-room reader, the guest is the consumer and is liable for the six-percent sales and use tax; the company, as the retailer of the service, must collect and remit it.

• Room occupancy tax — does not apply. The room occupancy tax reaches the transfer, for consideration, of occupancy of a hotel or lodging-house room for 30 consecutive days or less, and "consideration" includes charges for services and accommodations accompanying the room, whether or not separately stated (§ 12-407(a)(2)(H); Policy Statement 2003(1)). But here the PPV payment is made directly between the company and the guest and never becomes a hotel charge — so no room occupancy tax applies to it.

The dividing line is who the guest pays. Because the guest pays the vendor directly (not the hotel), the PPV charge is a stand-alone taxable CATV sale by the vendor, outside the hotel's room charge — and thus outside the room occupancy tax.

What this means for you

Pay-per-view and in-room service vendors

If you sell in-room entertainment as a CATV service and collect directly from the guest (e.g., via your own in-room card reader), you are the retailer: register, collect the 6% sales and use tax on those charges, and remit it. The fact that the charge bypasses the hotel folio doesn't make it tax-free — it just makes you, not the hotel, the party responsible for the tax.

Hotels and lodging operators

When a third-party vendor bills the guest directly for PPV, that charge is generally not part of your taxable room rent for room occupancy tax purposes. Room occupancy tax still applies to services and accommodations you charge the guest for as part of the room. Watch the billing path: a charge that flows through the hotel bill can be analyzed differently from one paid straight to an outside vendor.

Accountants and tax professionals

Two separate taxes are in play. In-room movies are taxable CATV under § 12-407(a)(27) regardless of billing method; what the direct-to-vendor payment changes is who is the retailer/consumer and whether the room occupancy tax (§ 12-407(a)(2)(H)) attaches. Direct guest-to-vendor payment keeps the charge out of the room occupancy tax base.

Common questions

Q: Are hotel pay-per-view movies taxable in Connecticut?
A: Yes. DRS treats in-room PPV as a taxable "community antenna television service" under § 12-407(a)(27), subject to the 6% sales and use tax.

Q: If the guest pays the movie vendor directly by card, who collects the tax?
A: The vendor. When the guest pays at the vendor's in-room reader, the guest is the consumer and owes the 6% tax, and the vendor (the retailer of the service) must collect and remit it.

Q: Does the room occupancy tax apply to the pay-per-view charge?
A: No — not when the guest pays the vendor directly. Because the transaction is between the vendor and the guest and isn't a hotel charge, no room occupancy tax applies to it.

Q: Would the answer change if the PPV charge went on the hotel bill instead?
A: This ruling addresses only the direct guest-to-vendor payment. The room occupancy tax reaches charges for services accompanying the room that the hotel bills as consideration for occupancy, so a charge routed through the hotel folio could be analyzed differently.

Citations and references

Statutes:

• Conn. Gen. Stat. § 12-407(a)(27) (definition of taxable "community antenna television service")
• Conn. Gen. Stat. § 12-407(a)(2)(H) (room occupancy tax — transfer of occupancy of a hotel/lodging-house room for 30 consecutive days or less; "consideration" includes accompanying services whether or not separately stated)

Related DRS guidance:

• Ruling No. 95-6 (cited for the conclusion that in-room movie services are taxable community antenna television services)
• Policy Statement 2003(1), Application of Sales and Use Taxes and the Room Occupancy Tax to the Hotel and Motel Industry

Source

• Landing page: Connecticut DRS Rulings
• Ruling: Ruling 2005-4

Original ruling text

Ruling 2005-4, Sales and Use Taxes/Room Occupancy Tax/Community Antenna Television Services

FACTS :

A company (hereinafter the “Company”) that contracts with hotels to provide in-room, pay-per-view movies (hereinafter “PPV”) has asked for guidance on the sales and use taxes and room occupancy tax obligations associated with its services.

To deliver its PPV services, the Company installs a central control unit in hotels that contract with the Company.  The Company owns and maintains the central control unit.  The central control unit contains either a rack of video cassette players or digital file servers that store movies among which guests may choose.

Hotel guests may use interactive, computer-controlled television sets in their hotel rooms to choose PPV movies from a menu that identifies the Company as the vendor of the movies using a remote control device that belongs to the Company.  Cables connect each hotel room television to the central control unit.  When a hotel guest makes a PPV selection, a signal goes to the central control unit.  The central control unit plays the selected movie by sending the signal from the central control unit through the cables to the guest’s hotel room TV.

The Company determines the PPV offerings at each hotel and sets the prices for each PPV movie.  The Company has no written contracts with individual hotel guests.

The Company plans to install credit card readers in hotel rooms to allow guests to pay for their PPV selections directly by credit card.  A guest will pay for a movie selection by swiping a credit card in an in-room credit card reader owned by the Company.  The charge will appear on the guest’s credit card bill, and no PPV charges will appear on the guest’s hotel bill.  The Company will pay a commission to the hotel based on a percentage of all proceeds the Company collects from its PPV movie sales.

ISSUE :

What sales tax and room occupancy tax liabilities exist when hotel guests pay for PPV services using an in-room credit card reader instead of making payment for such services to the hotel?

DISCUSSION :

The Department has previously ruled that in-room movie services similar to the Company’s PPV services are taxable “community antenna television services” (hereinafter “CATV”) as defined in Conn. Gen. Stat. §12-407(a)(27).  See Ruling No. 95-6.

When a hotel guest charges the PPV fees to the guest’s credit card using the in-room credit card reader, the guest is the consumer of the PPV service and is liable for the six percent sales and use taxes on such service.  The Company, as the retailer of the service, must collect and remit the tax on its sales of PPV services to guests in Connecticut hotels and lodging houses.

The room occupancy tax applies to the transfer for consideration of the occupancy of a room or rooms in a hotel or lodging house for 30 consecutive days or less.  Consideration includes charges for the services and accommodations accompanying the use and possession of the room or rooms, whether or not charges for the services or accommodations are separately stated by the hotel or lodging house.  Conn. Gen. Stat. § 12-407(a)(2)(H); see also Policy Statement 2003(1), Application of Sales and Use Taxes and the Room Occupancy Tax to the Hotel and Motel Industry .

No room occupancy tax applies when a hotel or lodging house guest charges the PPV fees to the guest’s credit card using the in-room credit card reader, because the transaction is made directly between the Company and the guest.

RULING :

When a guest at a Connecticut hotel or lodging house pays a vendor other than the hotel or lodging house for pay-per-view services by credit card at the time of service using an in-room credit card reader owned by the vendor of the pay-per-view services, the guest is the consumer of a community antenna television service and is liable for the six-percent sales and use tax.  No room occupancy tax liability exists in this transaction.

LEGAL DIVISION

December 14, 2005