Does a hotel owe sales tax on free rooms it gives to convention groups, employees, vendors, and visiting travel writers?

Plain-English summary

Lake Placid Lodge, a remote, high-end hotel, gives away complimentary rooms in four different situations: to groups that book enough paid rooms, to employees who must stay overnight for work reasons, to vendors (musicians, photographers) who perform services outside normal hours, and to independent travel writers who review the property. The Department analyzed each category separately under New York's hotel occupancy tax, which taxes "rent" — consideration received for occupancy — but exempts truly free rooms given for no consideration.

Group contracts: A complimentary room bundled into a group's block booking isn't separately taxable — it's just part of the group's overall taxable charge, so the hotel collects tax on what the group actually pays and nothing extra for the free room.

Employees: Lodging given to employees is tax-free if the hotel receives no cash or other consideration for it AND the lodging isn't taxable income to the employee under federal or state income tax rules (the same three-part test IRS uses: on the business premises, for the employer's convenience, required as a condition of employment). If the lodging value IS income to the employee, the hotel owes sales tax on it.

Vendors: These rooms are NOT complimentary in the legal sense — providing a room is part of what the hotel pays vendors for their services, so it's taxable consideration on the normal room rate, and the hotel may also owe tax on the vendor's own taxable services.

Travel writers: Because the hotel has no control over what (or whether) the writer publishes and doesn't require anything in return, these rooms are genuinely free and not subject to tax.

What this means for you

Hotel and hospitality operators

Whether a "free" room escapes sales tax turns on whether the hotel is really getting nothing in return. Rooms folded into a paying group's contract, no-strings press stays, and qualifying employee lodging are exempt. But if you're trading a room for someone's services — a musician, photographer, or any vendor — that room is taxable consideration, not a freebie, even if no cash changes hands.

Employers offering staff lodging

Check the federal Section 119 test (business premises, employer's convenience, condition of employment) before assuming employee lodging is tax-free — if the lodging counts as income to the employee, the hotel must collect or pay sales tax on its value.

Accountants and tax professionals

This ruling is a clean four-way sorting template for "complimentary" hotel rooms: distinguish rooms with no consideration at all (writers, true employee convenience lodging) from rooms that are consideration for something else (vendor services, group bookings), since only the former escape New York's hotel occupancy tax under 20 NYCRR 527.9(f).

Common questions

Q: Are all complimentary hotel rooms exempt from New York sales tax?
A: No. Only rooms given for genuinely no consideration are exempt. If the room is really payment for someone's services (like a vendor), it's taxable.

Q: Does giving a free room to a convention group trigger extra tax?
A: No — it's treated as part of the group's overall paid booking, not separately taxed.

Q: Are rooms given to employees always tax-free?
A: Only if the hotel gets no consideration and the lodging isn't income to the employee under federal/state income tax rules; if it is income, sales tax applies.

Q: Can another hotel rely on this Advisory Opinion for its own comp-room policy?
A: No. It binds the Department only for the petitioner and the facts described; another hotel's arrangements should be checked against its own facts.

Citations and references

Statutes and regulations:

• Tax Law § 1101(c)(6) (definition of "rent")
• Tax Law § 1105(e) (hotel occupancy tax)
• 20 NYCRR 527.9(f) (complimentary accommodations), (g) (employee lodging)
• 26 U.S.C. § 119; 26 C.F.R. § 1.119-1(b) (federal employer-lodging income exclusion)
• Tax Law § 612(a) (New York adjusted gross income)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2006.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a06_11s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-06(11)S
Sales Tax
April 6, 2006

Office of Tax Policy Analysis
Technical Services Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S041130A

On November 30, 2004, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Lake Placid Lodge Inc., 131 Church Street, Burlington, Vermont, 05401.
The issue raised by Petitioner, Lake Placid Lodge Inc., is whether rooms in a hotel
provided without a specific charge to various persons qualify as complimentary accommodations
not subject to sales tax.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner operates a hotel in northern New York State. Petitioner is located in a
relatively remote location and serves an affluent clientele. Petitioner's clients, who travel to the
hotel from all areas of the United States, Asia and Europe, demand a high degree of service that
necessitates employees working beyond normal working hours. The remoteness of the location
sometimes requires employees, vendors and others to stay overnight at the lodge.
Petitioner provides complimentary rooms to various persons, including groups,
employees, vendors and travel writers.
Group contracts
Petitioner provides a complimentary room or rooms at no additional charge when a group
contracts with Petitioner for multiple rooms of sufficient quantity.
Employees
Petitioner provides rooms to employees for various reasons, including, attendance at
management meetings that extend beyond normal working hours, the need for service employees
to work overtime to provide services for guest functions, and attendance by employees visiting
from Petitioner's sister companies at management or business meetings at the hotel. Because the
employees are required to work beyond regular business hours to fulfill their employment duties,
Petitioner deems it necessary that they stay on the premises.
Vendors
Petitioner may provide rooms to vendors because the hotel is not easily accessible to
other lodging facilities. Vendors, including musicians who perform at the hotel, photographers
who photograph the hotel for brochures, and other select vendors, may provide services outside
of normal business hours, making it difficult for them to find alternative suitable lodging in the
hotel's vicinity.

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Travel writers
Petitioner provides complimentary rooms to travel writers who are retained by
independent publications to write reviews of the hotel. Petitioner does not employ or contract
with the writers, and does not enter into any agreement with them as to the content of their
review. In addition, Petitioner does not require or expect the writer to bring additional business
to the hotel. Petitioner has no control over whether or not the writer will write about Petitioner,
whether anything written will be positive or negative, or whether, if written, the article will be
published.
Applicable law and regulations
Section 119 of the Internal Revenue Code provides, in part:
(a) Meals and lodging furnished to employee, his spouse, and his dependents,
pursuant to employment. There shall be excluded from gross income of an employee the
value of any meals or lodging furnished to him, his spouse, or any of his dependents by
or on behalf of his employer for the convenience of the employer, but only if ­
(1) in the case of meals, the meals are furnished on the business premises of the
employer, or
(2) in the case of lodging, the employee is required to accept such lodging on the
business premises of his employer as a condition of his employment.
(b) Special rules. For purposes of subsection (a)
(1) Provisions of employment contract or state statute not to be determinative.
In determining whether meals or lodging are furnished for the convenience of the
employer, the provisions of an employment contract or of a State statute fixing terms of
employment shall not be determinative of whether the meals or lodging are intended as
compensation.
Section 1.119-1(b) of the Treasury Regulations provides, in part:
Lodging. The value of lodging furnished to an employee by the employer shall be
excluded from the employee's gross income if three tests are met:
(1) The lodging is furnished on the business premises of the employer,
(2) The lodging is furnished for the convenience of the employer, and
(3) The employee is required to accept such lodging as a condition of his
employment.

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The requirement of subparagraph (3) of this paragraph that the employee is
required to accept such lodging as a condition of his employment means that he be
required to accept the lodging in order to enable him properly to perform the duties of his
employment. Lodging will be regarded as furnished to enable the employee properly to
perform the duties of his employment when, for example, the lodging is furnished
because the employee is required to be available for duty at all times or because the
employee could not perform the services required of him unless he is furnished such
lodging. If the tests described in subparagraphs (1), (2), and (3) of this paragraph are
met, the exclusion shall apply irrespective of whether a charge is made, or whether, under
an employment contract or statute fixing the terms of employment, such lodging is
furnished as compensation. . . .
Section 612 of the Tax Law provides, in part:
New York adjusted gross income of a resident individual (a) General. The
New York adjusted gross income of a resident individual means his federal adjusted
gross income as defined in the laws of the United States for the taxable year, with the
modifications specified in this section.
Section 1101(c) of the Tax Law provides, in part:
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 sales tax rate in effect at the situs of such establishment, except that the tax shall

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not apply to (1) the charges for occupancy by a permanent resident, or (2) where the
charge is $2 or less per day.
(b) Definitions. As used in this section, the following terms shall mean:
*

*

*

(3) Occupancy. The use or possession of, or the right to use or possess, any room
in a hotel.
(4) Occupant. A person who, for a consideration, uses, possesses or has the right
to use or possess, any room in a hotel under any lease, concession, permit, right of access,
license to use or other agreement, or otherwise.
*

*

*

(7) Rent. (i) The consideration received for occupancy valued in money, whether
received in money or otherwise. The term rent includes separately stated charges for the
use of furnishings and equipment, maid service, towel and linen service, telephone
service and other accommodations.
(ii) Charges for food and drinks, entertainment, valet and laundry service, theatre
ticket service and transportation do not constitute rent but may be taxable under other
sections of the Tax Law.
*

*

*

(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.
(2) Where there is consideration, such as the bringing of future business to the
hotel by a tour guide, travel representative or other, who at the time of negotiations
receives his accommodation free of charge, the accommodation is subject to the tax on
the normal rent of the room, except where the normal rent is less than $2 a day.
Example 1: Association ABC holds its December convention at Hotel Y and
receives five complimentary rooms for use by the association's officers and convention
chairman for the duration of the convention. The complimentary rooms are not
considered to be separately taxable, but rather are part of the total taxable charge to the
association and its members.
Example 2: A hotel advertises that, for every 12 days of occupancy of one of its
rooms by one individual, it will offer that individual one day's accommodation of the
same type without charge. This additional occupancy is not subject to tax.

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(g) Employee lodging. (1) Lodging furnished by an employer to employees is not
subject to tax if the employer receives no cash (or other consideration) for the lodging
from the employees and the value of the lodging is not income for the employees under
the Federal or State income tax laws.
(2) An employer furnishing lodging to his employees, as provided in paragraph
(1) of this subdivision, is not required to collect or pay a tax on the value assigned to the
lodging. However, the employer is liable for tax for any expenses incurred which would
ordinarily be taxable to the operator of a hotel.
(3) Any charge by an employer to an employee for lodging is subject to tax,
whether paid in cash by the employee or withheld from the employee's wages.
(4) This subdivision shall apply only to lodging furnished to employees of hotels,
motels and similar establishments.
Opinion
Section 1105(e) of the Tax Law imposes a sales tax on the rent for every occupancy of a
room or rooms in a hotel in New York State with certain exceptions not here relevant. 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. 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. See section
527.9(f)(1) of the Sales and Use Tax Regulations.
Group contracts
Petitioner provides a complimentary room or rooms at no additional charge when a group
contracts with Petitioner for multiple rooms of sufficient quantity. Such complimentary rooms
are not considered to be separately taxable, but rather are part of the total taxable charge to the
group. Accordingly, Petitioner need only collect the sales tax applicable to the actual charges
made by it to the group under the group contract. See section 527.9(f)(2), Example 1 of the
Sales and Use Tax Regulations.
Employees
Petitioner occasionally and for various reasons may provide lodging to its employees. If
Petitioner receives no cash or other consideration for the lodging from its employees and the
lodging is provided under circumstances whereby the value of the lodging is not income for the
employees under federal or State income tax laws, lodging furnished by Petitioner to its
employees is not subject to sales tax and Petitioner is not required to collect or pay a tax on the
value assigned to the lodging. For purposes of federal and State personal income tax, the value
of lodging furnished to an employee by his or her employer shall be excluded from the
employee’s wages if such lodging is furnished on the employer’s business premises, is furnished

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for the employer’s convenience and the employees must accept such lodging as a condition of
employment. See section 119 of the Internal Revenue Code and section 1.119-1(b) of the
Treasury Regulations; and section 612(a) of the Tax Law. If the value of such lodging is
included in the employee's income for federal or State income tax purposes, Petitioner is required
to collect or pay sales or use tax on the value assigned to the lodging. It can not be determined
from the facts presented in this Opinion whether lodging provided by Petitioner to its employees
is income for the employees under federal or State income tax laws. If Petitioner were to charge
its employee for lodging, the charge would be subject to tax whether paid in cash by the
employee or withheld from the employee's wages. See section 527.9(g)(3) of the Sales and Use
Tax Regulations.
Vendors
Petitioner may provide rooms to vendors, including musicians, photographers and other
select vendors who provide services to Petitioner. It is noted that vendors serving Petitioner are
distinguishable from Petitioner's employees.
The provision of rooms to the vendor is part of the consideration paid by the hotel for the
vendor's services. In this case, Petitioner provides the accommodation for a consideration which
is subject to the tax on the normal rent of the room. See section 527.9(f)(2) of the Sales and Use
Tax Regulations. Petitioner may also be liable for tax on the full consideration received by the
vendor who has provided taxable services. Such consideration includes the normal rent of the
room.
Travel writers
Petitioner provides complimentary rooms to travel writers who are retained by
independent publications to write reviews of the hotel. When a person is known to Petitioner as
a travel writer and, as such, is provided with free lodging at Petitioner's hotel in order to induce
such person to come to the hotel, the accommodations are not regarded as being provided for a
consideration and are not subject to the sales tax on the normal rent of the room. See section
527.9(f)(1) of the Sales and Use Tax Regulations.

DATED: April 6, 2006

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.