Was a company's rotating block of hotel rooms exempt from Illinois hotel tax when reserved for at least 30 consecutive days?

Plain-English summary

A company qualified as a permanent resident for a fixed number of hotel rooms only when it was unconditionally obligated to rent and pay for those rooms for at least 30 consecutive days. The rooms could be occupied by different employees during that period, and permanent-resident status did not require using the same physical room every night.

If the agreement did not create that unconditional obligation for a specific room count and duration, the hotel had to charge and collect Hotel Operators' Occupation Tax. The Department could not tell from the request whether the company's arrangement met that condition.

If tax was charged on a room that ultimately qualified through a 30-consecutive-day occupancy or right to occupy, the business had a right to request a refund from the hotel. Tax collected and not refunded had to be remitted to the Department; after an unconditional refund, the hotel could claim a credit.

What this means for you

The contract should identify the exact number of rooms, the uninterrupted 30-day period, and an unconditional duty to pay even when rooms are unused. A flexible or releasable block may not qualify.

Common questions

Q: Could different employees rotate through the rooms?
A: Yes.

Q: Did all reserved rooms qualify automatically?
A: No. The company had to be unconditionally liable for a specific number of rooms for at least 30 consecutive days.

Q: Did the GIL decide the company's contract qualified?
A: No.

Subject

Hotel Operators’ Tax

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2010.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2010/st-10-0096.pdf

Original ruling text

ST 10-0096-GIL 10/14/2010 HOTEL OPERATORS’ TAX
Gross receipts from the rentals of rooms to "permanent residents" are not subject to Hotel
Operators' Occupation Tax liability. A "permanent resident" is any person who has occupied or
has the right to occupy any room or rooms in a hotel for at least 30 consecutive days. See 86
Ill. Adm. Code 480.101. (This is a GIL.)

October 14, 2010

Dear Xxxxx:
This letter is in response to your letter dated October 1, 2010, in which you request
information. The Department issues two types of letter rulings. Private Letter Rulings (“PLRs”) are
issued by the Department in response to specific taxpayer inquiries concerning the application of a
tax statute or rule to a particular fact situation. A PLR is binding on the Department, but only as to the
taxpayer who is the subject of the request for ruling and only to the extent the facts recited in the PLR
are correct and complete. Persons seeking PLRs must comply with the procedures for PLRs found in
the Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General Information
Letter (“GIL”) is to direct taxpayers to Department regulations or other sources of information
regarding the topic about which they have inquired. A GIL is not a statement of Department policy
and is not binding on the Department. See 2 Ill. Adm. Code 1200.120. You may access our website
at www.tax.illinois.gov to review regulations, letter rulings and other types of information relevant to
your inquiry.
The nature of your inquiry and the information you have provided require that we respond with
a GIL. In your letter you have stated and made inquiry as follows:
According to Illinois Publication 106 the Hotel Operators' Occupation Tax is not due
when there is a binding contract with a permanent resident for at least 30 days.
However, there is no information regarding contracts between a hotel and guests for
multiple rooms for at least 30 days.
This letter is a formal request for a legal written ruling on the permanent resident status
of a company occupying a block of rooms over a period of at least 30 days. The
company has entered into an agreement with the hotel to block off 50 rooms per night
for their employees. Each month is treated as a separate 30 day period, with the
exception of February. Throughout each 30 day period, the number of rooms used may
vary from the original room block of 50. Some nights may have fewer than 50 rooms
used, while others may have more than 50 rooms used. Even though some of the
rooms may not be used, the original 50 rooms are not released to the public.
The company has many employees who work in shifts, so it is a frequent occurrence
that throughout the course of a single day, 1 room will be used by 2 different people,
and the company will be billed for the cost of using the room twice. Since they are still
occupying the same room, are they exempt from both charges?

Our request is that the Department issue a ruling on the exempt status of this situation.
Since there is a contract in place, and the room block of 50 is not released to the public,
are all room charges exempt from the Hotel Operators' Occupation Tax, or just a portion
of the rooms? How should we determine the amount of rooms that should be tax
exempt? Should the taxability of the rooms be determined by the number of rooms
used, billed, or reserved per day?
I appreciate your assistance in this matter.

DEPARTMENT’S RESPONSE:
The Hotel Operators’ Occupation Tax Act (35 ILCS 145/1 et seq.) imposes a tax upon persons
engaged in the business of renting, leasing or letting rooms in a hotel. The tax is imposed at a rate of
5% of 94% of the gross rental receipts from the renting, leasing or letting of such rooms. An
additional tax is also imposed at a rate of 1% of 94% of such gross rental receipts. The gross
proceeds from rental receipts for rentals to “permanent residents” are excluded from Hotel Operator’s
Occupation Tax liability.
A permanent resident is any person who occupies or has the right to occupy any room or
rooms, regardless of whether it is the same room or rooms, in a hotel for at least 30 consecutive
days. See 86 Ill. Adm. Code 480.101 and 480.105. Regardless of whether the customer contracted
with the hotel operator to stay 30 consecutive days at check-in, if a person qualifies as a permanent
resident (stays at least 30 consecutive days at the hotel), the gross receipts received by the hotel
operator would not be subject to tax for that period.
If a business and a hotel operator enter into an agreement that requires a business to rent a
specific number of rooms for at least 30 consecutive days and the business is unconditionally
obligated to pay for such rooms, whether or not they are occupied during that period, then the
business is a permanent resident for those specific number of rentals, the hotel operator is not
subject to the Hotel Operator's Tax with respect to the rental receipt for those specific number of
rentals, and it does not have to charge and collect the tax. The rooms may be occupied by different
employees of that business during that 30 consecutive day period.
If a business and a hotel operator enter into an agreement that does not unconditionally
obligate the business to pay for a specific number of rooms for at least 30 consecutive days, the hotel
operator is required to charge and collect the tax. If the hotel operator charges the business the hotel
tax for a room (whether or not it is the same room) for a 30 consecutive day period, the business shall
have a legal right to claim a refund of the amount of tax collected for such room from the hotel
operator.
Any taxes collected by the hotel operator that are not refunded to the customer for any reason
must be remitted to the Department. 35 ILCS 145.3(f). Upon an unconditional refund of the tax to the
permanent resident, the hotel operator may file a claim for credit for any hotel tax paid by the
operator. 86 Ill. Adm. Code 480.125.
It is unclear from your letter whether the company is unconditionally obligated to pay for the
block of rooms for at least 30 consecutive days. If the company is not unconditionally obligated to
pay for the block of rooms for at least 30 consecutive days, as noted above, the hotel operator is
required to charge and collect the tax.

I hope this information is helpful. If you require additional information, please visit our website
at www.tax.illinois.gov or contact the Department’s Taxpayer Information Division at (217) 782-3336.

Very truly yours,

Richard S. Wolters
Associate Counsel
RSW:msk