Did an Illinois sales-tax exemption number exempt a government instrumentality from hotel room tax or the hotel's reimbursement charge?

Plain-English summary

An Illinois E number did not exempt an otherwise tax-exempt organization or governmental body from the economic cost of Hotel Operators' Occupation Tax on a room rental.

The reason was structural. Ordinary Illinois sales tax includes a Use Tax imposed on the purchaser, so an exempt purchaser's status can attach to that purchaser-level tax. Hotel Operators' Occupation Tax, by contrast, was imposed only on the hotel operator. There was no complementary hotel tax imposed on the room occupant to which the occupant's exempt status could attach.

Accordingly, renting a room to an entity holding an E number did not exempt the hotel operator from tax. The hotel could collect a reimbursement amount from the customer for the operator's tax liability, and the E number did not exempt the room occupant from that reimbursement charge.

What this means for you

A government instrumentality or exempt organization could not use its Illinois sales-tax E number alone to remove the hotel operator's tax or refuse the hotel's corresponding reimbursement charge. Hotel accounting teams should distinguish purchaser-level sales-tax exemptions from taxes imposed directly on the hotel operator.

Common questions

Q: Who owed Hotel Operators' Occupation Tax?
A: The hotel operator, not the room occupant.

Q: Did the occupant's E number exempt the room rental?
A: No. The letter says the hotel operator remained taxable when renting to an exempt entity.

Q: Could the hotel charge the exempt entity for reimbursement?
A: Yes. The operator could collect reimbursement, and the E number did not exempt the occupant from that charge.

Subject

Hotel Operators’ Tax

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2011.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2011/st-11-0036.pdf

Original ruling text

ST 11-0036-GIL 05/23/2010 HOTEL OPERATORS’ TAX
This letter explains the application of the Hotel Operators’ Occupation Tax when rentals are
made to persons holding “E” numbers. (This is a GIL.)

May 23, 2011

Dear Xxxxx:
This letter is in response to your email dated May 13, 2011, 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:
I just want to be 100% clear that even though we are an instrumentality of the
government and are tax exempt per Title 12, United States Code, Section 531 we still
have to pay hotel (lodging) taxes in the state of Illinois.
Please confirm back so can [sic] advise our accounting department since we do have
our NY employees traveling to Chicago and do not want to give them incorrect
information on tax exemption.
DEPARTMENT’S RESPONSE:
For your information, you may want to look at the Department’s regulation at 86 Ill. Adm. Code
480.101, which explains the nature, rate and scope of the Hotel Operators’ Occupation Tax Act
(“HOOT”) and can be found on the Department’s website. As you can see from Section 480.101
(b)(3), a hotel operator incurs this tax on room rentals to entities that would otherwise be exempt from
sales taxes (i.e., entities such as exclusively charitable, religious, or educational groups or
government entities that possess exemption identification numbers issued by the Department).
The HOOT operates very differently from what is commonly referred to as “sales taxes” in
Illinois. In an Illinois sales tax context, there are two separate but complementary taxes involved. The
Retailers’ Occupation Tax is imposed on the retailer and the Use Tax is imposed on the purchaser.
Since the Use Tax is imposed on the purchaser, there is a tax to which an exempt purchaser’s

exempt status can attach and, because these taxes are complementary, if the purchaser is exempt
from paying Use Tax then the retailer is generally exempt from the Retailers’ Occupation Tax. As a
result, when an exempt entity purchases tangible personal property and presents its exemption
identification number (“E” number) to a retailer, its purchases are exempt from Use Tax and the
retailer is exempt from Retailers’ Occupation Tax.
However, that is not the result with the HOOT. Under the HOOT, tax is imposed only upon the
hotel operator. There is no complementary tax imposed upon the room occupant. Since there is no
tax liability imposed upon the room occupant, there is nothing to which an occupant’s exempt status
can attach. In addition, the HOOT does not exempt a hotel operator from tax when a room is rented
to an exempt entity holding an “E” number issued by the Department.
The HOOT authorizes hotel operators to collect an amount from their customers that
represents reimbursement for the hotel operator’s tax liability. The fact that room occupants hold an
exemption identification number issued by the Department does not exempt them from paying this
reimbursement charge, if imposed by the hotel operator.
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,

Debra M. Boggess
Associate Counsel
DMB:msk