Does a resort have to collect a special local district sales tax on rooms physically located just outside the taxing district's boundary?

Plain-English summary

The Missouri Department of Revenue ruled that a resort operator must collect a special local district sales tax even on reservations for rooms that are physically located outside the boundary of the taxing district.

Applicant runs a resort on one contiguous property that straddles two municipalities. Almost everything -- the reservation booking system, payment processing, and the vast majority of amenities, activities, and rooms -- is located in "Locality A." A small set of sleeping accommodations ("the Cottages") sits in "Locality B," with its own physical check-in/check-out desk, but reservations and payments for the Cottages are still processed in Locality A, and Cottage guests travel into Locality A to use the resort's amenities. Locality A, but not Locality B, is part of a community improvement district (CID) and a transportation development district (TDD), which together impose a special local sales tax (the "District Tax").

The Department concluded the District Tax applies to the Cottages regardless of how the sale is characterized. The base sales tax is a 4% tax on hotel, motel, and tourist-cabin rooms (and meals and drinks) under Section 144.020.1(6), RSMo. For local sales tax purposes, there are two independent paths to the same answer: (1) if the reservation is treated as a taxable service, 12 CSR 10-117.100(3)(A)(5) says local sales tax follows where the service is "rendered or delivered" -- and here, the management activities, amenities, and guest activities (i.e., the actual service) all happen in Locality A, and the reservation and payment are processed there too; (2) if the reservation is treated as a sale of tangible personal property, Section 32.087.12(1), RSMo, says the sale is "consummated" at the retailer's place of business where the initial order is taken, and 12 CSR 10-117.100(2)(A) defines "place of business" broadly as anywhere in Missouri that the seller transacts business. Because Applicant's order-taking operations for all reservations, including the Cottages, are based in Locality A, that is also the "place of business" for tax purposes. Either way, the District Tax applies -- the physical location of the room in Locality B does not matter.

What this means for you

Hotels, resorts, and multi-location businesses spanning district boundaries

If your property straddles a municipal or district boundary -- for example, a resort, hotel, or campground where some rooms or units sit just outside a special taxing district -- this ruling indicates you cannot simply look at where a given room sits to decide whether the local district tax applies. What matters is where your reservation and payment processing happen and where the services associated with the stay (amenities, activities, management) are actually delivered. If those functions are centered in a district that imposes a local sales tax, that tax can apply to your entire operation, including units physically located just outside the district's boundary.

Accountants handling local sales tax compliance

This ruling illustrates the Department's two-track approach to sourcing local sales tax: services are sourced to where they are "rendered or delivered" under 12 CSR 10-117.100(3)(A)(5), while sales of tangible personal property are sourced to the retailer's "place of business" where the order is taken under Section 32.087.12(1), RSMo, and 12 CSR 10-117.100(2)(A). When advising a client with operations split across a district boundary, confirm where the client's booking, payment processing, and service delivery are actually centered -- that location, not the physical location of the specific unit or item sold, determines which local taxes (including CID and TDD district taxes) apply.

Common questions

Q: Does the physical location of a hotel room control which local sales taxes apply to it?
A: Not necessarily. This ruling shows that where the room physically sits is not the controlling factor. What controls is where the service is rendered (management, amenities, guest activities) and where the business's order-taking "place of business" is located. If those are in a district that imposes a local tax, the tax can apply even to rooms located outside the district.

Q: Why does it matter whether a reservation is a "service" or "tangible personal property"?
A: The ruling shows both characterizations lead to the same result here, but they use different rules to get there. Services are sourced to where they are rendered or delivered under 12 CSR 10-117.100(3)(A)(5). Tangible personal property sales are sourced to the retailer's place of business where the initial order is taken, under Section 32.087.12(1), RSMo, and 12 CSR 10-117.100(2)(A).

Q: What if a business's booking and payment systems were located in the district without the tax instead?
A: Based on the reasoning in this ruling, the outcome could flip -- if the order-taking place of business and the service delivery were centered in the non-taxing locality, the district tax likely would not apply, even to rooms physically located inside the taxing district. The ruling's logic tracks the business's operational center, not the mere geography of the accommodation.

Q: Can another business with a similar multi-location setup rely on this ruling?
A: Not automatically. A Missouri letter ruling binds the Department only as to the requesting Applicant, only for three years from its date, and only so long as the facts and law remain unchanged. A business with a similar cross-boundary setup should confirm its facts match those described here and consult a tax professional before relying on this result.

Citations and references

Statutes and regulations:

• Section 144.020.1(6), RSMo (4% state sales tax on hotel/motel/tourist-cabin rooms, meals, and drinks)
• 12 CSR 10-117.100(3)(A)(5) (local sales tax on services applies where the service is rendered or delivered)
• Section 32.087.12(1), RSMo (local sales tax on tangible personal property is consummated at the retailer's place of business where the initial order is taken)
• 12 CSR 10-117.100(2)(A) (definition of "place of business")

Source

• Landing page: Missouri DOR Rulings Search
• Ruling: LR 8262

Original ruling text

Dear Applicant:

This is a letter ruling issued by the Director of Revenue under Section 536.021.10, RSMo, and Missouri Code of State Regulations 12 CSR 10-1.020, in response to your letter dated June 6, 2023.

The facts as presented in your letter ruling request are summarized as follows:

Applicant operates a resort that provides accommodations to its guests, along with certain amenities and activities. Applicant operates on one contiguous property, which is primarily located in one municipality ("Locality A"), although a small portion of such property is located in a second municipality ("Locality B"). Applicant's primary operations - including its reservation booking system and payment processing system - are located in Locality A. The vast majority of Applicant's amenities and activities are located within Locality A. The vast majority of Applicant's sleeping accommodations are located in Locality A, although a small number of sleeping accommodations are located in Locality B (the "Cottages"). Although the check-in/check-out desk for the Cottages is located in Locality B, the reservations for the Cottages and all payments related thereto are processed by Applicant in Locality A. Guests of the Cottages travel within Locality A to enjoy activities and amenities provided by the resort. Locality A is part of a community improvement district ("CID") and a transportation development district ("TDD") (the CID and TDD are referred to collectively as the "Districts"), while Locality B is not included in either the CID or TDD. As part of a CID and TDD, Locality A imposes a special local sales tax (the "District Tax").

ISSUE :

Is Applicant required to collect the District Tax with respect to the sales of reservations for the Cottages located in Locality B?

RESPONSE :

Yes. Applicant should collect the District Tax with respect to the sales of reservations for the Cottages located in Locality B.

The relevant sales tax is imposed under section 144.020.1(6), RSMo, which provides:

A tax equivalent to four percent on the amount of sales or charges for all rooms, meals and drinks furnished at any hotel, motel, tavern, inn, restaurant, eating house, drugstore, dining car, tourist cabin, tourist camp or other place in which rooms, meals or drinks are regularly served to the public.

There are separate rules for determining the applicable local sales tax with respect to the sale of tangible personal property or the provision of taxable services. Regardless of whether the sales of reservations for the Cottages are considered the sale of tangible personal property or the provision of taxable services, the District Tax applies.

With respect to the provision of taxable services, Missouri Code of State Regulations section 10-117.100(3)(A)(5) provides that the "sale of services subject to state sales tax is subject to the local sales tax in effect where the service is rendered or delivered." The management activities, amenities, and guest activities are located within Locality A. When guests make reservations for the Cottages, the reservations and payments are processed within Locality A. Thus, the provision of services occurs within Locality A.

With respect to the sale of tangible personal property, section 32.087.12(1), RSMo, determines the applicable local sales tax:

For the purposes of any local sales tax imposed by an ordinance or order under the local sales tax law, all sales...shall be deemed to be consummated at the place of business of the retailer... [i]n the event a retailer has more than one place of business in this state which participates in the sale, the sale shall be deemed to be consummated at the place of business of the retailer where the initial order for the tangible personal property is taken, even though the order must be forwarded elsewhere for acceptance, approval of credit, shipment or billing.

Missouri Code of State Regulations section 10-117.100(2)(A) defines "place of business" as "a place where business is transacted in Missouri and that is maintained, occupied or used, directly or indirectly, by a seller or agent of the seller."

Based on the foregoing, the District Tax applies to the taxpayer's reservations, including those at the Cottages in which the sleeping accommodations are outside the Districts.

This letter ruling is binding upon the Department of Revenue with respect to the Applicant for three (3) years from the date of this letter and is subject only to statutory changes by the General Assembly and to changes in the interpretation of law by the courts or administrative tribunals.  If a change occurs, the taxpayer who relies upon an outdated interpretation may be subject to additional taxes, interest and penalties, which may be imposed prospectively from the date of the change.  For this reason, the interpretation set forth above should be reviewed on a regular basis.  Please note that any change in or deviation from the facts as presented will render this ruling inapplicable.

Should additional information be needed, please contact Legal Counsel J. Ross Shelton General Counsel's Office, Post Office Box 475, Jefferson City, Missouri 65105-0475, phone (573) 751-0961.

Sincerely,

Wayne Wallingford