When a hotel's in-house AV provider contracts directly with guests, is the hotel purchasing those AV services -- and is it liable for the sales tax?

Plain-English summary

Two hotels each contract with a third-party AV provider to be the sole in-house provider of audiovisual equipment and related services at the hotel. The AV provider operates as an independent contractor from a designated space in the hotel, sets its own (hotel-approved) prices, and signs a separate contract directly with each guest/customer who needs AV for an event; the hotel is not a party to that contract. In exchange for being the exclusive on-site provider, the AV provider pays the hotel a sizable commission (generally 40%+) and operates under detailed hotel guidelines (staffing, equipment lists, employee conduct, audit rights). The guest may be billed through the hotel's "master billing" account (with the AV charges separately stated), in which case the hotel collects the money and remits it to the provider less its commission -- though the guest's payment obligation runs to the provider, who bears the risk of nonpayment. The hotels asked (1) whether they are purchasing the AV services, and (2) whether they would be treated as the vendor of those services.

The Office of Counsel concluded:

• The hotels are not purchasing the AV services. Unlike the caterer in Matter of 21 Club (which itself contracted to provide AV to its customer and then hired a provider), neither hotel contracts with its guests for the AV equipment or services -- that's left entirely to the separate guest-provider contract. The provider owns the equipment, and only its employees handle it and take direction from the customer. So the hotels are not buying the equipment rental or AV services, and aren't reselling them as a component of catering.
• But the hotels are co-vendors. The large commission, the exclusive in-house arrangement, the hotels' detailed control over the provider, and -- critically -- the hotels' frequent collection of the receipts through master billing show a shared interest that makes the hotel and the AV provider co-vendors under Tax Law 1101(b)(8)(ii)(A) (Names in the News; California Brew Haus).
• Joint and several liability. As co-vendors, a hotel is jointly and severally liable for the sales tax on taxable AV charges it collects and turns over to the provider if the provider then fails to remit it. However, the hotel is not required to remit the tax if the AV provider has already reported and remitted it (Old Republic, TSB-A-02(16)S).

This opinion depends on the specific contract terms; different terms could change the analysis.

What this means for you

Hotels and venues with an exclusive in-house service provider

Letting a guest contract directly with an independent AV (or similar) provider can keep you from being the purchaser/reseller of that service -- but it does not automatically keep you off the hook for the tax. If you take a meaningful commission, designate the provider as exclusive, control how it operates, and collect the guest's payment (e.g., through master billing), the Department can treat you as a co-vendor that is jointly and severally liable for the tax. Protect yourself by making sure the tax on those charges is actually reported and remitted -- a co-vendor that can show the other vendor remitted the tax owes nothing further.

AV and other on-site service providers

If you remit the tax on your charges, your hotel partner generally won't be separately liable. Keep clean records tying each master-billed charge to your sales-tax remittance.

Common questions

Q: Our guests sign their own contract with the AV company -- are we buying or reselling AV services?
A: No. If the guest contracts directly with the provider and you aren't a party, you aren't purchasing or reselling the AV services.

Q: Then why are we liable for the tax?
A: Because collecting the guest's payment through master billing, plus a large commission, exclusivity, and control, makes you a co-vendor -- jointly and severally liable for tax on the AV charges you collect and pass to the provider.

Q: How do we avoid owing the tax?
A: Make sure the AV provider actually reports and remits it. A co-vendor that can show the other vendor remitted the tax isn't required to remit it again.

Citations and references

• Tax Law section 1105(a) (sales tax on tangible personal property)
• Tax Law section 1105(d) (catering and similar services)
• Tax Law section 1101(b)(5) (rental is a sale)
• Tax Law section 1101(b)(8)(ii)(A) (co-vendor; persons required to collect tax)
• Tax Law section 1101(b)(4)(i)(A) (purchases for resale)
• 20 NYCRR section 527.8(f)(2)(i) (property used by a caterer)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2011.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a11_27s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Counsel
Advisory Opinion Unit

TSB-A-11(27)S
Sales Tax
October 17, 2011

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NOs. S100209B
& S100209C

The Petitioners are the owners of two hotels names redacted that have each entered into a
contract with a third party to rent audio visual equipment and provide related services (AV
provider) at their respective hotel locations to the hotel’s guests and customers. The AV
provider enters into a separate agreement with the customer to rent audio visual equipment and
related services for a specific event at the hotel (AV services). The Petitioners ask: (1) are they
purchasing AV services from the AV provider; and (2) whether they would be treated as the
vendor of such AV services by the AV provider at their hotel locations.
We conclude that in those instances where the AV provider enters into a separate
agreement between itself and the hotel guests or customers for providing AV services at a
specific event, the hotels are not purchasing the AV services from the AV provider. However,
due to the nature of the contracts at issue, they may be considered to be acting as co-vendor in
any instance where they collect the payment from the customer and that payment includes
taxable receipts.
Facts
The Petitioners each own a hotel located within New York State. Each hotel location
serves as a venue for many types of events, including those which require the provision of AV
equipment and services (e.g. conferences, and professional meetings). For these types of events,
the hotels will offer their customers various services including guest rooms, food and drink, and
other items related to the events themselves, such as charges for renting a ballroom or meeting
room. The hotels do not own the AV equipment and their staff do not provide AV services to
their customers. Each of the hotels has entered into a separate contract with an AV service
provider that specifies that the AV provider is the sole in-house provider of AV services and
equipment and that the AV provider is to provide such services at that location for the benefit of
the hotel and its customers. The contracts also provide that the AV provider will act as an
independent contractor with its own employees, and will operate from a designated location
within the hotel at issue. In return, the AV provider agrees to execute its services to the hotel’s
customers in the manner expected by the hotel, and to pay the hotel a sizable commission
(generally 40% and up) from the proceeds of its equipment rentals and AV services. The
contract does require the AV provider to cooperate and coordinate with an outside AV provider
if one is selected by the hotel guest.

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When scheduling an event, each hotel will enter into a contract with the customer for that
event. This contract generally governs the services that the hotel will provide for the event.
When a customer requires AV equipment and services for their event (such as a projector,
microphone, screen, recording equipment or similar services), the hotel will direct the customers
to meet with the on-site representative of the AV provider. The hotel’s contract with the
customer may reference the AV provider and the AV provider’s ability to provide AV services
and equipment, but it makes no mention of the other terms of the hotel’s arrangement with the
AV provider, nor does it insist that the AV provider provide AV services to the customer. In
order to obtain AV services at its event, the customer is required to enter into a separate contract
with the AV provider.
Depending on the services to be provided to the client, the hotel may collect the entire fee
for the event, including the amounts for the AV services, from the customer. The AV service
contract used for a meeting room rental will specify that if the customer requires any rigging
services (as opposed to the renting the AV equipment) for the event, these services must be
provided through the onsite AV provider. While any hotel customer is free to bring in their own
outside contractor to provide AV equipment and related services, if a customer elects to do so,
they and the outside AV provider must follow certain guidelines. A typical invoice provided to
the customer will include separate charges for equipment rental, rigging equipment rental, labor,
and setup/take down charges.
While the hotels’ contracts with the AV provider provide that the AV provider operates
as an independent contractor, the contracts acknowledge that the manner in which the AV
provider rents the AV equipment and delivers its services will reflect upon the hotel. For this
reason, the contracts require that the AV provider operate within a number of detailed guidelines.
For example, the AV provider is required to collect customer service scores from its customers at
the time events are held at the hotel. If the survey responses fall below the hotel’s expectations
(as stated in the contract), there are negative consequences for the AV provider. If the customer
service scores drop below a certain average as required by the contract, the hotel may increase
the amount of commission payable to it pursuant to its contract with the AV provider as a form
of penalty. In this instance, this amount is not refunded or credited to any customer of the hotel.
Moreover, the hotel reserves to itself the right to ask the AV provider to offer its equipment and
services at discounted prices to those customers selected by the hotel (such as for frequent hotel
customers), or to provide refunds or accept less than the billed amount if a customer is
particularly dissatisfied. The contract even provides that the AV provider is required to render
its services and equipment to the hotel at no charge when for use at the hotel’s own events (such
as staff meetings, or training classes). However, the AV provider otherwise sets the base prices
for the rental of its equipment and any related labor charges, subject to the hotel's approval.
These base prices must be consistent with the AV provider’s prevailing published rates for the
rental of comparable equipment at comparable hotels and resorts in which the hotels compete.
The contract between the hotel and the AV provider also grants the hotel the ability to
establish general guidelines for the provision of AV provider’s services. For example, the hotel
has the right to establish rules and regulations relating to the appearance and conduct of the AV

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provider’s employees, and may require the AV provider to remove any employee of the AV
provider whose manner or dress the hotel finds objectionable. The contract not only details the
staffing levels expected of the AV provider, but also provides detailed lists of the type and
amount of equipment to be located at the hotel. The hotel also has the ability to audit both the
performance of the AV provider’s services and its books.
As noted above, the AV provider enters into a separate agreement with the hotel’s
customer for the provision of its services. The hotel is not a party to these agreements. The
agreement between the AV provider and the customer does permit billing for the AV services
provided at an event to be made through the customer's master account at the hotel. However, in
many cases the customer chooses to be billed directly by the AV provider. When charges for the
AV services are billed through the customer’s master account at the hotel, the charges for the AV
equipment rentals and AV services are separately-stated as a miscellaneous charge on the hotel’s
bill to the customer. If collected through the master account, the hotel will generally remit to the
AV provider the total amount collected (less the hotel’s commission), including any sales tax
charged to the hotel customer. The AV provider then remits the applicable sales tax paid by the
hotel customers on its next sales tax return. If the AV provider bills the customer directly, it must
provide a summary statement to the hotel. The summary includes a calculation of the hotel’s
commission and any revenues resulting from the AV services generated by the equipment rented
and/or services provided by AV provider. The hotel does not guarantee collection of the AV
service charges from the hotel’s guests. Indeed, even where the customer is billed through its
master account, its payment obligation is to AV provider, not to the hotel. Pursuant to the
contract between the hotels and the AV provider, the AV provider bears the risk of loss for its
charges on the master account and has the responsibility to collect the amounts due directly from
the customer if the customer does not make full payment on the master account to the hotel.
Analysis
Tax Law §1105(a) imposes a tax on “every retail sale” of tangible personal property in
the State. Pursuant to Tax Law §1101(b)(4)(i)(A), a sale of such property for use in performing
certain enumerated services is not considered to be a retail sale and is not, therefore, subject to
tax. Catering services, which are taxable under Tax Law §1105(d), are not one of those services.
For the purposes of the sales and use tax, a rental is a sale (Tax Law §1101(b)(5)). Section
527.8(f)(2)(i) of the Sales and Use Tax Regulations state that “[t]axable tangible personal
property or services used or consumed by a caterer in performing catering services are not
purchased for resale as such and are subject to tax.” For the purposes of AV services, if the
Petitioners were to contract with its customer for the provision of the AV services, but then hire
an AV provider to provide such services to its customer, the sale of such service to the
Petitioners would be subject to tax. See Matter of 21 Club, Inc. v. Tax Appeals Tribunal, 69
A.D.3d 996 (3d Dep’t. 2010).
Unlike the caterer in 21 Club, neither Petitioner enters into a contract for the rental of the
AV equipment to its customers. The Petitioners’ agreements with their customers do not include
the terms of the rental of the AV equipment. That is left exclusively to the separate agreement

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between the customer and the AV provider. The equipment is owned by the AV provider, and
only its employees may handle it. While the Petitioners may establish very general guidelines
for the overall performance of the AV provider’s service, the AV provider’s employees are the
only ones which take direction from, and provide service to, the customer in renting the AV
equipment and related AV services. Therefore, Petitioners are not purchasing either the
equipment rental or the AV services from the AV provider, and the Petitioners are not selling
such services as a component part of its catering services.
The Petitioners do, however, frequently collect the revenue owed to them and the AV
provider through the use of the “master billing” account. While the hotels and the AV provider
are separate, unrelated entities, the hotels at issue do receive a considerable commission in
exchange for their agreeing to the AV provider as the sole in-house/on-site provider of the AV
equipment and related AV Services at the hotel, and the hotels agree that they shall not operate
their own audiovisual equipment rental services business, or enter into an agreement or contract
for the provision of AV services at the hotel other than through the AV provider. While a
customer is free to bring in their own equipment or AV provider, they generally will also have to
pay a member of the AV provider’s staff to be present as well (which would discourage most
customers from doing so). Certainly, in most instances, when a customer asks for AV services
the hotel refers them to the AV provider, as the hotel will ultimately end up receiving a
considerable commission.
Because the rental of the AV equipment and the provision of the related AV services are
critical to the hotels’ operations, the contracts acknowledge that the manner in which the AV
provider delivers its services will reflect upon each hotel. For this reason, the provisions of the
contract provide that the AV provider operate within a number of detailed guidelines. For
example, the hotel has the right to establish rules and regulations relating to the appearance and
conduct of the AV provider’s employees and may require the AV provider to remove any
employee of the AV provider whose manner or dress the hotel finds objectionable. The contract
not only details the staffing levels expected of the AV provider, but also provides detailed lists of
the type (and amount) of equipment to be located at the hotel. The hotel also has the ability to
audit both the performance of the AV provider’s service and its books. The latter provision is to
protect the hotel in those instances where the AV provider receives payment from the customer
directly.
These provisions, among many others, illustrate the shared interest between the hotel and
the AV provider. While other AV providers may be used by the customer if the customer insists
on it, the hotels have a contractual obligation and significant financial interest in acting on the
AV provider’s behalf in “directing” general AV inquiries from its customers to the AV provider.
That, along with the fact the hotels often collect the receipts received on the AV provider’s
behalf, means that the hotel and the AV provider are co-vendors for the purposes of the Tax
Law. See, Names in The News v. New York State Tax Commn., (75 A.D.2d 145); Matter of
Edward Yager and Patrick McKeon d/b/a California Brew Haus, TAT (March 23, 1989). As
such, the hotels are jointly and severally liable for any sales tax due on the sales of AV service
contracts if they collect the receipts and then turn such receipts over to the AV provider, and the

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AV provider subsequently fails to remit the tax due on such sales. See, Jericho Boats of
Smithtown, Inc. v. State Tax Commission, (144 AD2d. 163); Sec. 1101(b)(8)(ii)(A) Tax Law.
This means that the hotels will be liable for tax if the AV provider fails to remit it to the
Department. However, the hotels are not required to remit tax on the sales if the AV provider
has reported and remitted the tax due. See, Old Republic Minnehoma Insurance Co. and
Ordesco, Inc., TSB-A-02(16)S.
This AO is based upon the terms of the contracts provided; the analysis may change if the
contract terms change.

DATED: October 17, 2011

NOTE:

/S/
DEBORAH R. LIEBMAN
Deputy Counsel

An Advisory Opinion is issued at the request of a person or entity. It is limited to the
facts set forth therein and is binding on the Department only with respect to the
person or entity to whom it is issued and only if the person or entity fully and
accurately describes all relevant facts. An Advisory Opinion is based on the law,
regulations, and Department policies in effect as of the date the Opinion is issued or
for the specific time period at issue in the Opinion.