Does a hotel owe New York's hotel occupancy tax on payments its franchisor makes for free rooms given to guests redeeming loyalty-program reward points?

Plain-English summary

A Holiday Inn franchisee in Albany was required, under its franchise agreement, to participate in InterContinental Hotel Group's (IHG's) "Hotel Reward Night" loyalty program. Guests earn points by staying at any IHG-brand hotel, and can later redeem accumulated points for a free night at any participating hotel, including one where they never earned a single point. When a point-redemption guest checks in, the hotel provides the room at no charge to the guest — but IHG separately pays the hotel, once a month, an amount based on the hotel's normal room rate (though not the exact rate a walk-in customer would pay). The franchisee, in turn, pays IHG a small percentage of its own room revenue to fund the program, and can net that obligation against what IHG owes it for redemptions.

The issue was whether the hotel owes hotel occupancy tax on those franchisor-paid amounts, given that the actual guest pays nothing. The Department said yes. New York defines "rent" for hotel-tax purposes as "the consideration received for occupancy valued in money, whether received in money or otherwise" — it doesn't require that the guest be the one who pays. Because the hotel is still receiving real, calculable consideration for providing the room (from IHG, on IHG's own schedule and formula), that payment is rent, and the hotel must collect and remit hotel occupancy tax on it just as it would on a cash rate paid directly by a guest. This is different from a hotel handing out a genuinely complimentary room for which nobody pays anything — that stays untaxed, but only because no consideration changes hands at all.

What this means for you

Hotels participating in brand loyalty/rewards programs

Don't assume a "free" reward-night stay is automatically tax-free just because the guest isn't charged. If your franchisor (or any other third party) reimburses you for providing that occupancy, that reimbursement is taxable rent, and you're responsible for collecting and remitting hotel occupancy tax on it.

Hotel franchisees negotiating or reviewing loyalty-program terms

Build the hotel occupancy tax into your accounting for franchisor reimbursements under mandatory loyalty programs — the tax applies to what you're actually paid for providing the room, not to whatever a member of the public might otherwise be charged for the same room.

Accountants and tax professionals

The controlling distinction here is genuinely complimentary occupancy (no consideration paid by anyone, which stays untaxed under 20 NYCRR 527.9(f)) versus occupancy for which any party pays consideration (which is taxable "rent" regardless of who pays it or whether it matches the hotel's normal rate).

Common questions

Q: If a guest doesn't pay anything for a reward-program stay, does the hotel still owe hotel occupancy tax?
A: Yes, if the hotel receives payment from someone else (like its franchisor) for providing that occupancy. The tax applies to any consideration received for the room, regardless of who pays it.

Q: Is a truly complimentary room (where nobody pays anything) taxable?
A: No. Genuinely complimentary accommodations, where no one pays any consideration, are not subject to hotel occupancy tax.

Q: Does it matter that the franchisor's payment isn't the same amount a walk-in guest would pay?
A: No — the tax applies to whatever consideration is actually received for the occupancy, even if it's calculated differently from the hotel's standard public room rate.

Citations and references

Statutes and rules:

• Tax Law § 1101(c)(6) (definition of "rent": consideration for occupancy, in money or otherwise)
• Tax Law § 1105(e) (hotel occupancy tax)
• 20 NYCRR 527.9 (hotel occupancy tax; complimentary accommodations exception)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2004.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a04_19s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-04(19)S
Sales Tax
September 2, 2004

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S030905A

On September 12, 2003, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Turf House, Inc./ Holiday Inn - Turf on Wolf Road, 205 Wolf Road,
Albany, New York, 12205. Petitioner, Turf House, Inc./ Holiday Inn - Turf on Wolf Road, provided
additional information pertaining to the Petition on November 26, 2003.
The issue raised by Petitioner is whether the amounts paid by the Hotel Reward Night point
program to Petitioner for Petitioner’s provision of hotel occupancy to reward program participants
are subject sales tax.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner participates in InterContinental Hotel Group’s point redemption program (Hotel
Reward Night program) that is designed to benefit patrons that stay, on a regular basis, at hotels
owned, operated, managed or franchised by InterContinental Hotels Group (IHG). IHG is a separate
and distinct company that owns various hotel chains, including Holiday Inns. The Hotel Reward
Night program provides patrons who wish to participate in the program with reward points when
they stay at one of the IHG hotels. Accumulated points are exchanged for coupons good for lodging
at IHG hotels. The reward points have no dollar value to the patron who receives and accumulates
them. The patron cannot resell the reward points on the open market, nor can the reward points be
exchanged for money. The reward points are non-transferable to other parties or individuals, with
the exception of individuals living in the same household as the patron who has accumulated the
reward points.
The Hotel Reward Night program is part of IHG. Petitioner is a corporation separate and
distinct from IHG. It has entered into a franchise agreement with IHG and is required to participate
in the rewards point program by terms of its agreement with IHG. Petitioner, on a monthly basis,
is billed and pays to IHG a small percentage of its room revenues derived from the patrons who
participate in the Hotel Reward Night program. Thus, when a patron earns points from a stay at
Petitioner’s hotel, Petitioner will remit a small percentage of the room rate to IHG. Petitioner
accounts for this payment as an expense which it describes as a “frequent stay expense.”
Once a patron has accumulated enough reward points to redeem an occupancy, IHG mails
a coupon to the patron who is the rewards points recipient. The coupon instructs the program
participant to contact IHG to arrange for accommodations at Petitioner’s hotel (or any other IHG
hotel) at no charge to the participant. When a participant wishes to redeem a coupon by staying at
Petitioner’s hotel, the participant contacts IHG and IHG, in turn, contacts Petitioner to make the
desired reservation for the participant. Upon arrival at Petitioner’s hotel, the participant presents
the coupon to Petitioner for redemption and receives an occupancy at no charge to the participant

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September 2, 2004
either by Petitioner or IHG. Petitioner is paid by IHG on a monthly basis under the Hotel Reward
Night program. The amount paid by IHG to Petitioner is computed using a formula based on
Petitioner’s standard charges for room rentals. However, the agreed amount is not the amount that
Petitioner would normally charge a member of the public for the room. In lieu of receipt of payment
by check, Petitioner may be credited the amount of the payment against its liability for its monthly
payment to IHG derived from the patrons who participate in the Hotel Reward Night program by
staying at Petitioner’s hotel. The payment received from IHG when participants in the Hotel
Reward Night program use their earned points to stay at Petitioner’s hotel is revenue which is
accounted for by Petitioner as “room revenue.”
Applicable law and regulations
Section 1101 of the Tax Law provides, in part:
(a) When used in this article the term "person" includes an individual, partnership,
limited liability company, society, association, joint stock company, corporation, estate,
receiver, trustee, assignee, referee, and any other person acting in a fiduciary or
representative capacity, whether appointed by a court or otherwise, and any combination of
the foregoing.
*

*

*

(c) When used in this article for the purposes of the tax imposed under subdivision
(e) of section eleven hundred five, the following terms shall mean:
*

*

*

(6) Rent. The consideration received for occupancy valued in money, whether
received in money or otherwise.
Section 1105 of the Tax Law provides, in part:
Imposition of sales tax On and after June first, nineteen hundred seventy-one, there is
hereby imposed and there shall be paid a tax . . . upon:
(e) The rent for every occupancy of a room or rooms in a hotel in this state, except
that the tax shall not be imposed upon (1) a permanent resident, or (2) where the rent is not
more than at the rate of two dollars per day.
Section 527.9 of the Sales and Use Tax Regulations provides, in part:
Hotel occupancy. (a) Imposition. A sales tax is imposed on every occupancy of any
room or rooms in a hotel, motel or similar establishment at the combined statewide and local

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sales tax rate in effect at the situs of such establishment, except that the tax shall not apply
to (1) the charges for occupancy by a permanent resident, or (2) where the charge is $2 or
less per day.
*

*

*

(f) Complimentary accommodations. (1) When a hotel furnishes complimentary
accommodations to individuals, for which there is no consideration paid and no rental
charged, the hotel need not collect the tax on the normal cost of the room.
Opinion
Petitioner is required by its franchiser (IHG) to participate in IHG’s Hotel Reward Night
program. IHG is a separate entity from Petitioner. As a participating hotel, Petitioner is required
to make payments to IHG pursuant to the Hotel Reward Night program. Petitioner has agreed to
accept certain payments from IHG under the Hotel Reward Night program for occupancy it provides
under the program when individuals participating in the program decide to use their program points
by staying at Petitioner’s hotel. Petitioner is paid by IHG on a monthly basis for the occupancy
provided to participants under the Hotel Reward Night program. The amount paid by IHG to
Petitioner is computed using a formula based on Petitioner’s standard charges for room rentals.
However, the agreed amount is not the amount that Petitioner would normally charge a member of
the public for the room.
The participant informs IHG that he or she wishes to use the reward points. IHG makes the
reservation for the participant with Petitioner. The participant may or may not have previously been
a guest of Petitioner’s hotel. The participants who earned some or all of their program points from
stays with Petitioner can choose to use their reward points at Petitioner’s hotel or at any of the other
hotels participating in the program. Similarly a participant who earned reward points by staying at
other participating hotels could choose to use their reward points at Petitioner’s hotel.
Section 1101(c)(6) of the Tax Law defines the term “rent” as “The consideration received
for occupancy valued in money, whether received in money or otherwise.” (Emphasis added.)
Section 527.9(f) of the Sales and Use Tax Regulations describes complimentary accommodations
as accommodations “for which there is no consideration paid and no rental charged.” (Emphasis
added.)
In the present case, Petitioner receives consideration from its franchiser, IHG, for the
occupancy provided by Petitioner for guests participating in IHG’s Hotel Reward Night point
redemption program. The rent for such occupancy need not be charged directly to the hotel guest
in order to be subject to tax. Accordingly, Petitioner is required to collect the sales tax imposed by

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Sales Tax
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section 1105(e) of the Tax Law from IHG on the amount of consideration received from IHG for
such occupancy.

DATED: September 2, 2004

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.