How does Kansas sales tax apply to premium cable, pay-per-view, video games, and internet a hotel provides to guests?

Plain-English summary

A hotel asked how Kansas sales tax applies to the entertainment and connectivity it offers guests. The Department sorted the items into what the hotel can buy tax-free to resell, what it collects tax on, and what it pays tax on as a consumer.

Buy exempt, then tax the guest. Under K.A.R. 92-19-24, a hotel may purchase exempt from sales tax the premium cable television channels, the special events (pay-per-view) channel, and the video game rentals that it separately bills to the guest — these are purchases for resale. The hotel then collects sales tax on those premium cable services, the special-events channel, and the video game rentals when it bills them to the guest.

The hotel is the consumer of its own operating items. A hotel is the final consumer of everything it uses to run its business that is not for resale, so it pays sales tax on those purchases of tangible personal property and taxable services unless a statute exempts them. In particular, the hotel's purchases of basic cable television service are taxable to the hotel (that's part of running the property, not something separately resold to guests).

Internet is different. Charges for internet access fees and web hosting are not currently subject to Kansas sales tax. But the hotel must pay sales tax on the tangible personal property and taxable services it buys to provide that nontaxable internet service.

What this means for you

If you operate a hotel in Kansas, split guest-billed entertainment from your own operating costs.

• Resold premium content: buy exempt, charge the guest. Premium cable, pay-per-view/special-events channels, and video game rentals that you separately bill guests are purchases for resale — buy them without tax and collect sales tax when you bill the guest.
• Basic cable for the property: you pay the tax. Basic cable television you provide as part of running the hotel is your consumption, so you pay sales tax on it and don't resell it to guests.
• Internet access: no tax to the guest, tax on your inputs. Don't charge guests sales tax on internet access fees or web hosting, but pay sales tax on the equipment and taxable services you buy to deliver that internet.
• Separate billing is the pivot. The resale treatment applies to items separately billed to the guest. Bundle something into the room rate or general operations and it's more likely you're the consumer who owes the tax.

Common questions

Can a hotel buy premium cable and video games tax-free?
Yes, when they are separately billed to the guest. Under K.A.R. 92-19-24, the hotel buys premium cable channels, the special-events (pay-per-view) channel, and video game rentals exempt for resale and then collects sales tax when billing the guest.

Is basic cable television taxable to the hotel?
Yes. The hotel is the final consumer of basic cable television service used to conduct its business, so its purchases of basic cable are subject to sales tax.

Are internet access and web hosting taxable?
No, those charges are not currently subject to Kansas sales tax. But the hotel must pay sales tax on the tangible personal property and taxable services it buys to provide that nontaxable internet service.

Who is treated as the consumer of the hotel's operating items?
The hotel. It is deemed the final consumer of all items not for resale that are used to conduct its business, so it pays sales tax on those purchases unless a statute specifically exempts them.

Citations and references

• K.A.R. 92-19-24 — a hotel may purchase exempt (for resale) the premium cable television channels, special-events (pay-per-view) channel, and video game rentals it separately bills to guests, and must collect sales tax on those charges to the guest; the hotel is the final consumer of, and pays tax on, items used to run its business, including basic cable television.
• Kansas treatment of internet access — charges for internet access fees and web hosting are not currently subject to Kansas sales tax, but the provider pays sales tax on the property and taxable services purchased to provide that nontaxable service.

Source

• Original ruling (DOCX): https://www.ksrevenue.gov/pildocs/rulings/P-1999-20.docx
• Kansas Policy Information Library: https://www.ksrevenue.gov/prpil.html

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

January 29, 1999

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Dear Mr. TTTTTT:

We wish to acknowledge receipt of your letter dated October 8, 1998, regarding the application of Kansas Retailers’ Sales tax.

In accordance with K.A.R. 92-19-24, each hotel may purchase exempt from sales tax, premium cable television service channels, special events channel and video game rentals which are separately billed to the consumer. Each hotel shall collect sales tax for the premium cable services, special events channel and the video game rentals billed by the hotel to the respective guest.

A hotel is deemed to be the final consumer of all items which are not for resale and are used to conduct the hotel’s business. Therefore, each hotel shall pay sales tax on each purchase of tangible personal property and taxable services, unless specifically exempted by statute. Hotel purchases of basic cable television services are subject to sales tax.

Charges for internet access fees and web hosting are not currently subject to sales tax in the state of Kansas. However, hotels must pay sales tax on all articles of tangible personal property and all taxable services purchased to provide the nontaxable service.

This is a private letter ruling pursuant to K.A.R. 92-19-59. It is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to an accurate determination by the department, this ruling is null and void. This ruling will be revoked in the future by the operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or published revenue ruling, that materially effects this private letter ruling. If I may be of further assistance, please contact me at your earliest convenience at (785) 296-7776.

Sincerely yours,

Thomas P. Browne, Jr.
Tax Specialist

TPB

Date Composed: 02/11/1999 Date Modified: 10/11/2001

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