Does a hotel's 20% 'set-up fee' for a public room make the room rental taxable, and is the set-up fee itself taxable?

Plain-English summary

The Petitioner is a hotel operator that rents "public rooms" -- used for banquets, meetings, training, and religious services. The rental normally includes furniture (chairs, tables, podium), though a customer can rent without furniture. The hotel does not collect sales tax on the room rental unless it also provides catering. On top of the rental it charges a 20% "set-up fee" (sometimes called a service charge) -- on every public-room rental, with or without furniture, with or without catering -- and currently collects tax on the entire set-up fee. The fee is separately stated. It asked whether the set-up fee makes the room rental taxable.

The Office of Counsel concluded:

• The set-up fee is not a taxable "installation" charge. Section 1105(c)(3) taxes services of installing/servicing tangible personal property, and "installing" includes "setting up tangible personal property" (20 NYCRR 527.5(a)(2)). But the hotel charges the fee whether or not any furniture is provided, so it isn't a charge for setting up tangible personal property.
• The set-up fee is part of the rent. Because it's charged on all public-room rentals regardless of furniture or catering, it is part of the rent for the room. So it's taxable only if the room rent is taxable -- whether or not separately stated.
• Room alone (no food/drink) = not taxable. A public room is a "place of assembly," and renting one by itself is not subject to sales tax -- so the rent including the set-up fee is not taxable.
• Room with food/drink/catering = taxable. Renting a place of assembly in conjunction with the sale of food or drink makes the rent and the set-up fee taxable, separately stated or not (20 NYCRR 527.9(e)(1)).
• Incidental snacks: if the hotel provides only incidental snacks during breaks (coffee, tea, cookies) that are separately stated and reasonable, only the snack charge is taxable (20 NYCRR 527.9(h)(4)).

What this means for you

Hotels / banquet venues

A blanket "set-up fee" or service charge that you bill on every room rental -- regardless of whether you actually set up furniture -- is treated as part of the room rent, not a separate taxable installation service. So it follows the rent: taxable only when the rental itself is taxable.

The food/drink switch

Renting a meeting room or place of assembly by itself is not taxable. The moment you rent it with food or drink (catering), the whole rent -- including the set-up fee -- becomes taxable, even if you itemize. Plan your invoicing around that line.

Incidental snacks are narrower

Only truly incidental break snacks (coffee/tea/cookies), separately stated and reasonably priced, keep the rent nontaxable while taxing just the snacks. A real catered meal flips the whole rental to taxable.

Common questions

Q: Does my 20% set-up fee make the room rental taxable?
A: No -- the set-up fee is just part of the rent. It's taxable only when the room rental itself is taxable.

Q: When is a public-room rental taxable?
A: Renting the place of assembly alone isn't taxable. Renting it together with food or drink (catering) makes the rent and the set-up fee taxable, separately stated or not.

Q: We put out coffee and cookies on breaks -- does that tax the whole rental?
A: No, if those incidental snacks are separately stated and reasonable -- then only the snack charge is taxed, not the room rent.

Q: Can I rely on this opinion?
A: It binds the Department only as to the petitioner. Use it as guidance and confirm your own facts.

Citations and references

• Tax Law section 1105(c)(3) (sales tax on installing/servicing tangible personal property)
• 20 NYCRR section 527.5(a)(2) (definition of installing -- setting up tangible personal property)
• 20 NYCRR section 527.9(e)(1) (place-of-assembly rental with food or drink is taxable)
• 20 NYCRR section 527.9(h)(4) (separately stated incidental snacks)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2015.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a15_21s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-15(21)S
Sales Tax
May 26, 2015

Office of Counsel
Advisory Opinion Unit

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S140414A

The Department of Taxation and Finance received a Petition for Advisory Opinion from
REDACTEDREDACTEDREDACTEDREDACTED (“Petitioner”). Petitioner asks whether its
“set-up fee” for a public room would cause the receipts for the rental of the public room itself to
be subject to sales tax.
We conclude that the set-up fee is part of the rent for the public room and is taxable if
the room rental is taxable.
Facts
Petitioner is a hotel operator that rents “public rooms” at its facility to customers. Public
rooms are used for banquets, meetings, training seminars and religious services. The public room
rental includes furniture, such as chairs, tables and podium, although a customer may rent the
public room without furniture. Furthermore, Petitioner states that it does not collect sales tax on
the public room rental unless it provides catering services in conjunction with the room rental.
Petitioner charges an additional 20% set-up fee, sometimes referred to as a service charge, for
the public room rental, with or without furniture and whether or not catering service is provided.
Petitioner collects tax on the entire 20% set-up fee. The set-up fee is separately stated on the
invoice provided to the customer.
Analysis
Tax Law § 1105(c) imposes tax on the receipts from every sale, except for resale, of
certain enumerated services, including the services of installing, or maintaining, servicing or
repairing tangible personal property. See Tax Law § 1105(c)(3). The term “installing” includes
“setting up tangible personal property or putting it in place for use.” See 20 NYCRR §
527.5(a)(2). Despite referring to it as a “set-up” fee, Petitioner charges the fee whether or not
any furniture is provided. Accordingly, we conclude that Petitioner’s set-up fee is not a receipt
for services to tangible personal property because the fee is not dependent on Petitioner setting
up any tangible personal property or putting it in place for use.
Furthermore, because the set-up fee is charged on all public room rentals, regardless of
whether furniture or other services, such as catering, are provided, we conclude that the set-up
fee is part of the rent for the public room. Therefore, the fee is taxable, whether or not separately
stated, if the rent for the public room is taxable.

-2-

TSB-A-15(21)S
Sales Tax
May 26, 2015

Generally, the rental of a meeting room or rooms in a hotel by itself will not be subject to
sales tax if the meeting room constitutes a place of assembly. See Publication 848, A Guide to
Sales Tax for Hotel and Motel Operators; TB-ST-331 Hotel and Motel Occupancy. A “place of
assembly” is “[a] room or suite of rooms containing no sleeping accommodations and intended
to be occupied and used by persons for purposes other than sleeping and living quarters, such as
education, recreation, amusement or business or religious meetings.” Rental of a “place of
assembly” in conjunction with the sale of food or drink is subject to sales tax. See 20 NYCRR §
527.9(e)(1).
When Petitioner rents a public room without the provision of food or drink, the
rent for the public room, including the set-up fee, is not subject to sales tax. If Petitioner
provides only incidental snacks during breaks (e.g., coffee, tea, cookies) and the charge for those
snacks are separately stated and reasonable, only the charge for the snacks will be subject to tax.
See 20 NYCRR § 527.9(h)(4). However, when Petitioner provides catering services with the
public room, the rent for the room and the set-up fee are subject to sales tax, regardless of
whether they are separately stated. See 20 NYCRR § 527.9(e)(1).

DATED: May 26, 2015

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. The information provided in this
document does not cover every situation and is not intended to replace the law or
change its meaning.