For a vacation/overnight rental property manager, which of its various charges — cleaning fees, forfeited deposits, reservation fees, pet deposits, resold show tickets, pass-through firewood charges, bundled wedding packages, and trip insurance — are subject to Tennessee sales tax?

Subject

Sales tax treatment of overnight rental units and related fees, deposits, and bundled charges.

Plain-English summary

The Tennessee Department of Revenue answered eight questions from a vacation/overnight rental property manager about which of its various charges carry sales tax, working from the basic rule that transient lodging under 90 days is a taxable service and that the tax base (gross charge) generally can't be split up to dodge tax on charges that are really part of the room rental.

• Cleaning fees: depends on what's cleaned. Cleaning tangible personal property (like laundering guest linens) is a specifically taxable service. Cleaning the room itself is not taxable — but only if it's a genuinely separate, abnormal charge (like a fee for violating a no-smoking rule); a routine cleaning fee charged to every guest is inseparable from the taxable lodging charge and can't be carved out.
• Forfeited deposits, reservation fees, and non-refundable pet deposits: all taxable, because they're part of the gross charge for furnishing a room for consideration — whether the guest actually occupies the room or forfeits the deposit doesn't matter.
• Resold show tickets: taxable when charged to the guest, but the property manager can buy the tickets tax-free with a resale certificate (or get credit for tax already paid to the original seller) since this is a genuine resale of entertainment, not the purchase of an input to a different service.
• Pass-through items (e.g., firewood bought and resold at cost): taxable regardless of markup — even a zero-markup pass-through is still a retail sale of tangible personal property, again purchasable tax-free via resale certificate.
• Bundled packages (e.g., wedding services + overnight rental for one price): the entire lump sum is taxed if not broken out. Separately itemizing the rental from the (potentially nontaxable) wedding-planning services on the invoice lets the planning/coordinating portion escape tax, while any tangible items within the wedding package (flowers, cake) remain taxable regardless.
• Trip/damage-waiver insurance: not taxable, but only if separately stated on the invoice — insurance itself isn't a sale of property or a taxable service, but folding it into a single undifferentiated lodging charge would make the whole thing taxable.

What this means for you

Vacation rental and property management companies

Itemize your invoices. Nearly every answer in this ruling turns on whether a charge is separately stated: bundle a nontaxable item (wedding planning, insurance) into one lump-sum price with a taxable lodging charge, and the whole thing becomes taxable; break it out clearly, and the nontaxable piece stays that way. Also budget for tax on deposits and reservation/pet fees even when a guest never checks in — the Department treats these as part of the taxable room charge regardless of whether the stay actually happens. If your rental business was created under Tennessee's 2001 property-manager provisions (Tenn. Code Ann. §§ 67-4-702(a)(2), (11), (13), (24); 67-4-730; 67-6-501(d)), you — not the individual cabin/chalet owner — are the taxpayer of record; confirm which entity that provision makes responsible in your structure.

Accountants and tax professionals

This ruling collects several recurring sales-tax principles in one place: the anti-splitting rule from Saverio v. Carson (routine service charges can't be carved out of the taxable lodging base), the "gross proceeds" treatment of forfeitable deposits from Furniture Lease Co. v. Tidwell, and the resale-certificate mechanics under Tenn. Code Ann. § 67-6-507(b) for tax already paid upstream. Remember this is a Revenue Ruling — advisory only, not binding even on the requesting taxpayer — so it's persuasive but not something a client can rely on the way they could a letter ruling.

Common questions

Q: Are cleaning fees always taxable or always exempt for a vacation rental?
A: Neither — it depends. Cleaning tangible personal property (like laundering linens) is taxable. Cleaning the room itself is not, but only when it's a genuinely separate charge for abnormal circumstances; a routine per-stay cleaning fee charged to every guest is inseparable from the taxable rental charge.

Q: Is a forfeited security or reservation deposit taxable even though the guest never used the room?
A: Yes. The Department treats a forfeited deposit as part of the gross charge for furnishing the room, regardless of whether the guest actually occupied it.

Q: Can bundling a nontaxable service with a taxable rental charge reduce the overall tax owed?
A: No — it does the opposite. Bundling for one lump-sum price makes the entire charge taxable. Separately itemizing the nontaxable portion on the invoice is what preserves its exempt status.

Q: Is insurance sold alongside a rental reservation taxable?
A: Not if it's separately stated on the invoice. If it's lumped into the overall rental charge, it becomes taxable along with everything else.

Q: Does this ruling bind the Department for other similar rental businesses?
A: No. This is a Revenue Ruling — advisory only and not binding on the Department, even for the taxpayer who requested it.

Citations and references

Statutes and cases:

• Tenn. Code Ann. § 67-6-201, § 67-6-202, § 67-6-205 (imposition of sales tax on tangible personal property and taxable services)
• Tenn. Code Ann. § 67-6-102(37) (definition of "sales price," no deduction for costs, excludes cash discounts)
• Tenn. Code Ann. § 67-6-102(19) (definition of "gross sales")
• Tenn. Code Ann. § 67-6-102(34)(A) (definition of "retail sale")
• Tenn. Code Ann. § 67-6-102(34)(F)(i) (transient lodging under 90 days is taxable)
• Tenn. Code Ann. § 67-6-102(34)(F)(v) (laundering/dry cleaning of tangible personal property taxable)
• Tenn. Code Ann. § 67-6-212 (tax on entertainment/amusement, incl. show tickets)
• Tenn. Code Ann. § 67-6-507(b) (credit for tax already paid to a supplier)
• Tenn. Code Ann. §§ 67-4-702(a)(2), (11), (13), (24), 67-4-730, 67-6-501(d) (2001 provisions making the property manager the taxpayer for vacation rentals)
• Saverio v. Carson, 208 S.W.2d 1019 (Tenn. 1948) (charges can't be split to escape tax on inseparable lodging services)
• Furniture Lease Co. v. Tidwell, 495 S.W.2d 535 (Tenn. 1973) (forfeitable deposit is part of taxable gross proceeds)
• Nashville Mobilphone Co., Inc. v. Woods, 655 S.W.2d 934 (Tenn. 1983) (resale vs. purchase-to-provide-a-service distinction)

Source

• Landing page: https://www.tn.gov/revenue/tax-resources/legal-resources/tax-rulings.html
• Original PDF: https://www.tn.gov/content/dam/tn/revenue/documents/rulings/sales/07-04.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
REVENUE RULING # 07-04

WARNING
Revenue rulings are not binding on the Department. This presentation of the ruling
in a redacted form is information only. Rulings are made in response to particular
facts presented and are not intended necessarily as statements of Departmental
policy.
SUBJECT
Application of sales and use tax to overnight rental units and related service charges.

SCOPE
Revenue rulings are statements regarding the substantive application of law and
statements of procedure that affect the rights and duties of taxpayers and other members
of the public. Revenue rulings are advisory in nature and are not binding on the
Department.

FACTS
The taxpayer manages overnight rental property in Tennessee. In addition to a base
rental charge, the taxpayer may charge its customers for services such as cleaning and
concierge services. The taxpayer also requires a deposit from its customers, which the
taxpayer retains if the customer fails to use the rental that it has reserved. The taxpayer
also charges fees for making a reservation and for additional items the customer may
request, such as firewood.

QUESTIONS
1.
2.
3.
4.
5.

Are cleaning fees subject to sales tax?
Are forfeited deposits subject to sales tax?
Are reservation fees subject to sales tax?
Are non-refundable pet deposits subject to sales tax?
If the taxpayer offers a concierge service in which it purchases tickets to a
show in advance to provide to the customer upon arrival, is the taxpayer’s sale
of the tickets to the customer subject to sales tax? The taxpayer paid tax to the
original seller at the time it purchased the tickets.

6.

7.

8.

Are “pass through” charges for items of tangible personal property such as
firewood subject to sales tax? The amount charged by the taxpayer for these
items always equals the amount paid to the taxpayer’s supplier.
If the taxpayer bundles the charge for an overnight rental and the charge for a
wedding service, how does sales tax apply? In other words, the taxpayer
provides wedding services and an overnight rental for a single price.
If trip insurance or damage waiver insurance is sold at the time the customer
makes a reservation, how does sales tax apply?

RULINGS
1.
2.
3.
4.
5.

6.

7.

8.

As explained in the analysis below, the answer depends on the type of
cleaning performed.
Yes.
Yes.
Yes.
The taxpayer’s charge to the customer for the tickets is subject to sales tax.
The taxpayer can present a resale certificate to the original seller in order to
purchase the tickets without paying sales tax. If the taxpayer has paid tax on
its purchase and resold the tickets without collecting sales tax, it may take
credit for the amount of tax paid against the amount of tax due.
Charges for items of tangible personal property are subject to sales tax
regardless of whether the taxpayer marks up the price. The taxpayer can
present a resale certificate to the supplier in order to purchase the items
without paying sales tax. If the taxpayer has paid tax on its purchase and
resold the items without collecting sales tax, it may take credit for the amount
of tax paid against the amount of tax due.
Sales tax will apply to the entire bundled charge for taxable and nontaxable
services. If, on its invoice, the taxpayer separately states the charge for
wedding services and the charge for overnight rental, the rental is subject and
the wedding services may or may not be subject to tax. If the taxpayer
separates out any taxable portions of the wedding services, such as any
charges for tangible personal property (e.g., flowers, wedding cake, etc.), then
the remaining portions (e.g., planning and coordinating services, etc.) will not
be subject to tax.
If, on its invoice, the taxpayer separately states the charge for insurance and
the charge for overnight rental, only the rental is subject to tax.

ANALYSIS
General discussion of the Retailers’ Sales Tax Act
Tenn. Code Ann. § 67-6-201 provides that every person is exercising a taxable privilege
who engages in the business of selling tangible personal property at retail in this state or

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furnishes any of the things or services that are taxable under the Retailers’ Sales Tax
Act. 1 Specifically, Tenn. Code Ann. § 67-6-202 levies tax on the sales price of each item
of tangible personal sold at retail in Tennessee, and Tenn. Code Ann. § 67-6-205 levies
tax on the gross charge for those services that are specifically subject to tax under the
Act.
“Sales price” means:
the total amount for which a taxable service or tangible personal property
is sold, including any services that are a part of the sale of tangible
personal property, valued in money, whether paid in money or otherwise,
and includes any amount for which credit is given to the purchaser by the
seller, without any deduction therefrom on account of the cost of the
property sold, the cost of materials used, labor or service costs, losses, or
any other expense whatsoever…
Tenn. Code Ann. § 67-6-102(37). “Sales price,” however, does not include cash
discounts 2 or interest paid by the by the purchaser for making deferred payments. Id.
Although the term “gross charge” is not defined by statute, the inclusion of taxable
services in the definition of “sales price” indicates that the tax base (i.e. gross charge) for
services is defined as broadly as the tax base for tangible personal property. Moreover,
“gross sales” is defined as “the sum total of all retail sales of tangible personal property
and all proceeds of services taxable under this chapter…without any deduction
whatsoever of any kind or character, except as provided in this chapter.” Tenn. Code
Ann. § 67-6-102(19).
Tenn. Code Ann. § 67-6-102(34)(F) includes the following as two of the various services
that are taxable under the Act:
(i) The sale, rental or charges for any rooms, lodgings, or accommodations
furnished to transients by any hotel, inn, tourist court, tourist camp, tourist
cabin, motel, or any place in which rooms, lodgings or accommodations
are furnished to transients for a consideration. The tax does not apply,
however, to rooms, lodgings or accommodations supplied to the same
person for a period of ninety (90) continuous days or more…; 3

1

Tenn. Code Ann. § 67-6-201 includes other taxable privileges, such as using tangible personal property in
this state, which are not at issue in this ruling.
2
“Cash discount” is a term of art that means “a deduction from billed price which seller allows for payment
with a certain time; e.g. 10% discount for payment within 10 days” or “a discount offered for early
payment of an invoice.” BLACK’S LAW DICTIONARY, 6th Ed., p. 217.
3
Tenn. Code Ann. § 67-6-102(34)(F)(i) goes on to provide that certain charges related to time-share estates
are not subject to tax. However, that portion of the statute is not applicable to the facts presented in this
ruling.

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(v) The laundering or dry cleaning of any kind of tangible personal
property, excluding coin-operated laundry, dry cleaning or car wash
facilities, where a chare is made for the laundering or dry cleaning…. 4
In 2001, the General Assembly enacted provisions specifically applying to companies
that manage, on behalf of individual property owners, the overnight rental of vacation
lodgings owned by those individuals (e.g. cabins and chalets). In essence, the provisions
state that the property management company, rather than the individual property owner,
will be treated as the taxpayer for sales tax and business tax 5 purposes. Tenn. Code Ann.
§§67-4-702(a)(2), (11), (13), and (24); 67-4-730; 67-6-501(d). Sufficient facts are not
present in this ruling to determine whether these provisions apply to the taxpayer at issue.

1. Certain cleaning fees are subject to sales tax
   As discussed above, retail sales in Tennessee are subject to sales tax. Tenn. Code Ann. §
   67-6-102(34)(A) defines a retail sale to include a “taxable sale of tangible personal
   property or specifically taxable services to a consumer or to any person for any purpose
   other than resale.” Also subject to tax are “any services that are a part of the sale of
   tangible personal property....” Tenn. Code Ann. § 67-6-102(37). Therefore, a service is
   subject to tax if it is: 1) a service rendered as part of a taxable sale of tangible personal
   property, or 2) a specifically taxable service rendered in Tennessee. Cleaning tangible
   personal property is a specifically taxable service under Tenn. Code Ann. § 67-6102(34)(F)(v) and, therefore, is generally subject to the sales tax levied by Tenn. Code
   Ann. § 67-6-205(a). Cleaning real property is not subject to sales tax. Accordingly, any
   charge by the taxpayer for cleaning tangible personal property is subject to sales tax. For
   example, if the taxpayer provides the service of having its guest’s clothes laundered or
   dry-cleaned, it should provide a resale certificate to its supplier and charge sales tax to its
   guest.
   True charges for cleaning a room are not subject to tax because the room is real property.
   However, a provider of taxable lodging services cannot reduce the tax base for that
   service by separately stating a fee for cleaning that is routinely performed as part of
   renting the lodging service. See, e.g., Saverio v. Carson, 208 S.W.2d 1019 (Tenn. 1948)
   (holding that such an attempted division or separation of the charge for services rendered
   would render the law unworkable). If the cleaning fee is generally charged to all guests,
   it is an inseparable portion of the overnight lodging service and is subject to tax as part of
   the gross charge for the rental. However, if the fee is only charged to guests under
   abnormal circumstances (for example, a guest violates the non-smoking rule and is
   charged an additional cleaning fee), the additional room cleaning fee would not be
   subject to tax.

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The term “laundering” means more than merely the washing of clothes and applies to the cleaning of
other types of tangible personal property. ARB Enterprises, Inc. v. Olsen, 647 S.W.2d 939 (Tenn. 1983).
5
The local business tax is imposed under Tenn. Code Ann. § 67-4-701 et seq. and applies to all of the
goods and services discussed in this ruling. Whereas only specified services are subject to sales tax, all
services are subject to business tax unless expressly excluded under Tenn. Code Ann. § 67-4-708(3)(C).

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2. Forfeited deposits are subject to sales tax
As discussed above, overnight lodging or transient accommodation services are subject to
sales tax based on the gross charge. Tenn. Code Ann. §§67-6-102(34)(F)(i) and 67-6205. A guest may be required to pay a deposit of one night’s charges if he is reserving a
room. The substance of the transaction is that the guest has paid consideration for a hotel
room plus tax for one night. The guest is entitled to occupy the room. Whether the guest
occupies the room or he cancels the reservation after the specified time period is
immaterial. The fact remains that a room has been furnished to this guest for
consideration charged to the guest. See, Furniture Lease Co. v. Tidwell, 495 S.W.2d 535
(Tenn. 1973) (holding that a deposit was part of the “gross proceeds” of the lease and
subject to sales tax when a lease of furniture required a deposit equal to one month’s
rental to reimburse the lessor in the event of forfeiture of the lease, damages, or loss of
the furniture).
Under Tenn. Code Ann. § 67-6-102(34)(F)(i), sales tax applies whenever a room has
been furnished for consideration for a period of less than ninety (90) days. Therefore, the
forfeited deposit is subject to sales tax.

3. and 4. Reservation fees and non-refundable
   pet deposits are subject to sales tax
   As discussed in the analysis of questions 1 and 2, the entire gross charge for renting the
   accommodation is subject to tax. Accordingly, reservation fees and non-refundable pet
   deposits are subject to sales tax as part of the gross charge for the accommodation
   service.
4. Charges by the taxpayer for tickets to a show are subject to sales tax
   In addition to the taxation of goods and services discussed above, Tenn. Code Ann. § 676-212 levies sales tax on charges for various forms of entertainment and amusement,
   including the sale of tickets to a show. As with other goods and services, the sale of
   tickets is taxable when sold at retail. Retail sales are taxable sales to a person:
   for any purpose other than for resale . . . . Any sales for resale must,
   however, be in strict compliance with rules and regulations promulgated
   by the commissioner. Any dealer making a sale for resale which is not in
   strict compliance with rules and regulations shall be personally liable for
   and pay the tax.
   Tenn. Code Ann. § 67-6-102(34)(A). Sales for resale are sales of tangible personal
   property or taxable services to legitimate dealers “actually selling such property or
   services as such.” Tenn. Comp. R. & Regs. 1320-5-1-.62(1).
   When the taxpayer buys tickets to a show and provides them to guests for a charge, the
   taxpayer does resell entertainment as such. This is not a situation where goods or

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services are purchased so that a different service can be provided. See, e.g., Nashville
Mobilphone Co. Inc. v. Woods, 655 S.W.2d 934 (Tenn. 1983) (holding that a purchase is
not for resale if the item is used by the taxpayer to provide a service). Therefore, the
Taxpayer should purchase tickets intended for resale without payment of sales tax by
providing its supplier a valid Tennessee resale certificate.
However, the taxpayer presents a question in which it has paid sales tax on its purchase
of the tickets. Although the Taxpayer is liable for sales tax on the charge to its
customers, it is entitled to credit for tax it has already paid to its supplier pursuant to
Tenn. Code Ann. § 67-6-507(b), which states:
If the dealer can show by reasonable proof that the dealer has paid any
Tennessee sales or use tax to a vendor on personal property or taxable
services that such dealer has subsequently sold without collecting tax on
the resale of the personal property or taxable service, then the dealer shall
be given credit for any such payment in computing any liability to the
department for sales or use tax. Reasonable proof can be supplied by
invoices and other records that the dealer may obtain from the vendors
from which the dealer has made purchases.

6. “Pass through” charges for items of tangible
   personal property are subject to tax
   Sales for resale are sales of tangible personal property or taxable services to legitimate
   dealers “actually selling such property or services as such.” Tenn. Comp. R. & Regs.
   1320-5-1-.62(1). When the taxpayer purchases firewood for the purpose of reselling it to
   its guests, the taxpayer is making a purchase for resale and may use a resale certificate to
   purchase the firewood. The taxpayer, however, must charge sales tax on the firewood
   when it sells the firewood to its customer regardless of whether the taxpayer marks up the
   price of the firewood. The sale of firewood by the taxpayer to its customer is a retail sale
   as defined in Tenn. Code Ann. § 67-6-102(34)(A) and the taxpayer must collect tax on
   the sale.
   If the taxpayer has paid tax on its purchase and resold the items without collecting sales
   tax, it may take credit for the amount of tax paid against the amount of tax due. Tenn.
   Code Ann. § 67-6-507(b).
7. Sales tax applies to the entire bundled charge
   for taxable and nontaxable items
   If the taxpayer bundles a taxable service, such as overnight rental of accommodations,
   together with a nontaxable service, such as a wedding service, for one lump-sum charge,
   the entire charge will be subject to tax. Conversely, if the taxpayer separately states the
   charge for wedding services and the charge for overnight rental on its invoice, the rental
   will be subject to tax and the wedding services may or may not be subject to tax. If the
   taxpayer separates out any taxable portions of the wedding services, such as any charges

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for tangible personal property (e.g., flowers, wedding cake, etc.), then the remaining
portions (e.g., planning and coordinating services, etc.) will not be subject to tax. The
taxpayer should use a resale certificate to purchase any such items and then should collect
tax from its customer. If taxable items of tangible personal property are sold together
with nontaxable services for one lump-sum price, the entire charge will be subject to tax.

8. Charges for insurance are not subject to sales
   tax if separately stated on the invoice
   Charges for insurance do not constitute a sale of tangible personal property or any taxable
   service. Also, insurance is not part of the sale of a transient accommodation in the way
   that reservation fees and room cleaning fees are (see the analysis of questions 1 through 4
   above). Accordingly, trip insurance and damage waiver insurance are not subject to sales
   tax. They would only be taxable if they were not separately stated on the invoice (see the
   analysis of question 7 above). It is irrelevant how much of the charge the taxpayer keeps.
   Any amount that is not separately stated on the invoice, but rather is lumped together
   with the charge for overnight rental, would be taxable.

Deborah A. Toon
Tax Counsel

APPROVED: Reagan Farr
Commissioner of Revenue

DATE: 02-13-07

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