For a company that installs and operates in-room hotel entertainment systems (pay-per-view movies/video games, free cable/satellite channels, Internet access, and future special-events broadcasts) and bills guests through the hotel, which specific charges are subject to Utah sales tax, who has to collect and remit it, and how does this update the company's own 1996 advisory opinion now that some Commission policy has changed?

Plain-English summary

A company that installs and operates in-room entertainment technology for hotels asked the Utah Tax Commission to update an advisory opinion it had received three years earlier (96-010DJ, issued May 1996), both because enough time had passed and because the company had expanded its service offerings to include Internet access and planned future special-events broadcasts. The company's services included: Pay-Per-View (PPV) movies (delivered either via an in-room remote controlling a central rack of video players/digital file servers, or via telephone/PBX system in smaller hotels, with the hotel billing the guest and remitting a share to the vendor); Free-to-Guest cable/satellite channels (ESPN, TBS, HBO, CNN, etc., paid for by the hotel at a flat monthly rate per room, provided free to guests); Video Games (delivered similarly to PPV, via CD-ROM game players in the rack system); Internet Service in two forms — a TV-centric remote-control connection to a PC located in the rack system, or a laptop port providing direct high-speed connectivity; and future Special Events (live or replayed broadcasts of sports/concerts).

The Commission's 1999 answer changed policy in one significant way from the 1996 opinion: previously, whether a PPV movie or video game charge was taxable depended on HOW it was technically delivered to the guest's room. The Commission abandoned that distinction, holding that under Utah Code Ann. § 59-12-103(1)(f) (which taxes admission/user fees for movies, shows, closed-circuit broadcasts, and similar entertainment/recreation activities), ANY fee a hotel charges a guest for a movie or video game is now a taxable user fee for that entertainment activity, regardless of delivery method. Free-to-guest cable/satellite programming remains untaxed per Rule R865-19S-91 (mostly because these are interstate transmissions Utah can't tax, and because there's no separate guest charge) — but if a hotel ever does charge guests specifically for access to that programming, the Commission said that charge becomes taxable just like a closed-circuit-TV fee. Internet access charges to guests, in either technical form described, were confirmed as not currently taxable. Future special-events broadcasts would be taxed the same way as PPV movies — as taxable user fees.

On the mechanics of collection: the payment the vendor makes to the hotel for space to install its equipment is not itself a taxable transaction, and the hotel is not a "consumer" but rather the vendor's collection agent. The taxable event is the charge from the vendor (through the hotel) to the guest, and the hotel, as the vendor's agent, must collect that tax at the time of payment — but the vendor remains the ultimately responsible party for filing returns and remitting tax to the Commission, regardless of any private agreement shifting that duty to the hotel. Separately, the vendor is treated as the final consumer of its own video players, tapes, and similar equipment (owing sales tax on those purchases), unless it instead rents that equipment to the hotel, in which case the hotel owes tax on the rental charges as the final consumer of the rented equipment. Recognizing this was a policy shift, the Commission gave the industry until October 1, 1999 to come into compliance with the updated rules.

What this means for you

Hotels and in-room entertainment vendors currently billing guests for PPV or video games

Confirm your billing system charges tax on ALL PPV/video-game user fees regardless of the technical delivery method (rack-system remote control vs. PBX/telephone-based access) — this ruling eliminated the delivery-method distinction that an earlier 1996 opinion had relied on.

Hotels providing free cable/satellite channels to guests

As long as there's no separate charge to the guest for that programming, it stays untaxed under Rule R865-19S-91 as an (often interstate) transmission — but the moment you start charging guests specifically for access to it, that charge becomes a taxable user fee just like a PPV movie.

In-room technology vendors offering Internet access to hotel guests

This 1999-era ruling confirms internet access charges (whether via a rack-system connection or a laptop port) were not taxable at the time — but the Commission's OWN 1996-vs-1999 policy shift on PPV/video games in this very ruling is a reminder that these positions can and do change; verify current treatment before relying on this for internet-access billing today.

Vendors and hotels sorting out who collects and remits sales tax

The vendor-to-hotel space-rental/commission arrangement isn't itself taxable, but the vendor-to-guest entertainment charge is — and per this ruling, the vendor can't contract away its statutory duty to ultimately file returns and remit the tax, even if the hotel handles day-to-day collection from guests.

Common questions

Q: We used to structure our PPV delivery method specifically to avoid sales tax under an older ruling — does that still work?
A: No, according to this 1999 update — the Commission abandoned the delivery-method distinction from the earlier 1996 opinion (96-010DJ) and now taxes any guest fee for a movie or video game as a user fee under § 59-12-103(1)(f), regardless of how it's delivered.

Q: If we give guests free cable channels but later decide to charge for premium access, does the tax treatment change?
A: Yes, per this ruling — free-to-guest programming (with no separate guest charge) stays untaxed, but a charge specifically for access to that programming becomes a taxable user fee, similar to a closed-circuit-television fee.

Q: Who is legally on the hook if the hotel fails to collect or remit the sales tax on our behalf?
A: The vendor is, according to this ruling — the vendor remains ultimately responsible for filing returns and remitting the tax (and potentially owing penalties/interest) even if a private contract assigns collection/remittance duties to the hotel; a vendor "may not contract away its statutory duties as a vendor."

Citations and references

Statutes (Utah Code Ann., as in effect at the time of this 1999 ruling):

• § 59-12-103(1)(f) — imposes sales tax on admission or user fees for movies, shows, closed-circuit television broadcasts, and other amusement/entertainment/recreation/exhibition/cultural/athletic activities

Rules:

• Utah Administrative Rule R865-19S-91 — exempts subscriber charges for cable or satellite television transmissions from Utah sales tax

Prior Commission guidance referenced:

• Utah State Tax Commission Advisory Opinion No. 96-010DJ (issued May 24, 1996) — the company's earlier opinion, partially superseded by this 1999 ruling's change in PPV/video-game delivery-method policy

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/99-012.htm

Original ruling text

99-012

Response May 12, 1999

REQUEST LETTER

October 8, 1998

Re: Request for Sales and Use tax ruling

Dear Tax and Revenue Officer:

COMPANY requests updated rulings on our business services. We are making this request due to the traffic that has lapsed since receiving the prior ruling and because of an expansion motif service offerings. Please advise whether the following services are subject to Sales and/or Use Tax and, if so, who is responsible for remitting the tax to the state (COMPANY or the Hotel).

Pay Per View

COMPANY provides to the hotel's guests a pay-per-view entertainment service on television sets in hotel rooms (PPV Service).

The PPV Service is provided by means of a PPV System in the hotel, consisting of a central control unit linked by wire to the television sets in the hotel rooms. The control unit contains a rack of video cassette players (VCPs) or Digital File Servers, a computer and other electronic equipment The hotel provides space for the installation of the PPV system, which is owned, installed and maintained by COMPANY , and is solely under the control of COMPANY .

The guest selects a movie from a menu of available titles appearing on the television screen. When the guest selects a video program on the television set's remote control, a specific VCP in the PPV System control unit is electronically accessed and begins to run the tape of the movie. In some smaller hotels the PPV System is accessed by telephone through a PBX system (Video Now) rather than by remote control.

The agreement between COMPANY and the operator of the hotel provides that, based upon daily information reported by the monitoring unit on the PPV System, the hotel, on behalf of COMPANY , is to place a specified charge on the guest's hotel bill for each movie viewed. The hotel retains a specified percentage of each charge (commission) less any adjustments (denials) and remits the remainder to COMPANY monthly.

Free to Guest Service

COMPANY may provide various channels of television programming (e.g., ESPN, TBS, USA, HBO, and CNN) that are delivered to the hotel by satellite or cable and are provided free to the hotel guests. The hotel generally pays a specified monthly rate per room for this service.

Video Game Service

COMPANY may provide a selection of video games for use by the hotel guests. The games would be accessed via a game controller in the hotel room arid provided in a manner similar to the PPV Service, except that CD-ROM game players are used as the source of the games.

Internet Service

COMPANY may provide two kinds of Internet Services:

1. TV - Centric Internet Access

Guest in the room selects Internet access using a remote control, launching a TN based Internet browser (common to WebTV). The guest is connected to the Internet at high speeds, and uses a wireless infrared keyboard. The actual PC being used by the guest is located in the control unit rack, not in the guest room. Communication between the guest and the control unit rack is provided via the same wire as the PPV video services. Billing may be per day, per minute, per hour, or any other time period.

2. Laptop connectivity

Provides high-speed Internet connectivity to guests with laptop PCS. The laptop is connected to a port in the room and the guest is automatically connected to the highspeed network. The guest uses his or her own Internet browser. Billing is based on time periods (as above).

Special Events Service

COMPANY may in the future provide live, time delayed. simulcast or rebroadcast of special PPV events (e.g.. sports, wrestling, concerts). These events would be delivered live via satellite or replayed using our PPV System.

Sincerely.

NAME

TITLE

RESPONSE LETTER

May 12, 1999

COMPANY

ADDRESS

RE: Taxation of Pay-Per-View and Internet Services Provided to Hotel Guests by COMPANY

Dear NAME,

We have received your request for an advisory opinion that will update a previous advisory opinion issued to you, specifically Utah State Tax Commission Advisory Opinion No. 96-010DJ ("Advisory Opinion 96-010DJ"). The new request presents the identical issues COMPANY presented in Advisory Opinion 96-010DJ, except that the new request also requests opinions on the taxability of "Internet Services" and "Special Events Services" provided to hotel guests. Some of the opinions expressed in Advisory Opinion 96-010DJ have changed since its May 24, 1996, issuance, which will be explained below.

Movies or Video Games Ordered by Guests. In Advisory Opinion 96-010DJ, we stated that whether the charge to view a movie or play a video game in a guest's room is taxable depends upon the manner in which the movie or video game is delivered to the guest's room. We have since reconsidered this Commission policy that resulted in the taxation of some guest charges for movies and video games, but the nontaxation of others. Utah Code Ann. 59-2-103(1)(f) imposes a sales tax on the admission or user fees for various activities, including movies, shows of any type, closed circuit television broadcasts, or any other amusement, entertainment, recreation, exhibition, cultural, or athletic activity. We now consider that any fee that a hotel charges a guest for a movie or video game is a user fee for that entertainment activity. Accordingly, that user fee is subject to sales tax regardless of the manner in which the movie or video game is delivered to the guest's room.

Free to Guest Services. You state that various channels of television programming are delivered to the hotel by satellite or cable. The hotel is charged a specific monthly rate per room for this service. Only certain specified services are subject to Utah sales tax. There is no sales tax on subscriber charges for cable or satellite television transmissions. See Rule R865-19S-91. Thus, charges for cable service are not subject to sales tax when they are delivered to the hotel by cable or satellite transmission. Most cable or satellite transmissions are interstate transmissions, and Utah law does not permit the taxation of interstate transmissions.

You describe a situation where the guest is not charged for access to the cable or satellite transmission. However, should a guest be charged to have access to the television programming, that charge is taxable as a Section 59-12-103(1)(f) user fee for entertainment activities, akin to closed circuit television fees, whether that programming originates from cable or satellite transmissions or by some other means.

Internet Services. You indicate that you will provide two kinds of Internet service for guests. One kind has the guest using a remote control unit in his or her room to connect to the Internet through a personal computer located in the rack system provided by COMPANY . The second method would be to provide a port in the room to which the guest can connect his or her own laptop computer. While this port would provide access to the Internet, the guest could use his or her own Internet browser once connected. In either case, you are providing the guest with Internet access. Charges for on-line access to the Internet are not currently taxable.

Special Events Services. COMPANY may in the future provide broadcasts of special events, such as sporting events or concerts. These broadcasts would be delivered to the guest's room either live via satellite or replayed using the rack system that is located in the hotel. These broadcasts of special events would be treated for tax purposes in the same manner as any other pay-per-view movie or video game. Accordingly, charges for these broadcasts would be considered user fees for entertainment activities and, thus, be subject to sales tax.

Collecting and Remitting Sales Tax. Information provided for Advisory Opinion 96-010DJ indicated that COMPANY pays the hotel a fee or commission for the privilege of placing its video players and associated equipment in a hotel. The hotel is not a consumer, but a collection agent. The transaction between COMPANY and the hotel is not a taxable event. However, as noted above, the transaction between COMPANY and the room guest is taxable as an admission or user fee. The hotel, as COMPANY's agent, must collect sales tax on this charge. In this situation, COMPANY is considered the final consumer of all personal property used to deliver the taxable service. Thus, COMPANY should pay sales tax on its own purchases of video players, video tapes, and other similar personal property.

Utah also imposes sales tax on charges for the rental or lease of tangible personal property. If a hotel rents videos and video playing and broadcasting equipment from COMPANY , the hotel is required to pay sales tax on the rental charges associated with the playback and broadcast equipment and the video tapes. Those taxes should be collected by COMPANY , but may be passed through to the hotel. The hotel is considered the final consumer of those items.

As the vendor, COMPANY is ultimately responsible for filing a return and remitting the sales tax to the Tax Commission. The hotel, as your agent, must collect sales tax from the customer at the time of payment. Whether the hotel is also responsible for completing sales tax returns and remitting the sales tax on behalf of your company depends upon your agreement with the hotel. If the hotel does not remit the tax and file the returns, COMPANY will be required to do so and may also be responsible for any penalties and interest, regardless of any contract to the contrary. In other words, COMPANY may not contract away its statutory duties as a vendor.

We recognize that some of these policies have changed since your last request letter was answered. The Commission is currently taking steps to alert the hotel industry of these changes. While these changes are effective now, we will not require compliance with these changes until October 1, 1999, in order to allow the industry sufficient time to make any necessary collection and reporting adjustments. Please contact us if you have any other questions.

For the Commission,

R. Bruce Johnson

Commissioner

If the hotel charged its guest to rent the video, where the guest receives actual physical possession of the video, the guest would be considered the final taxable consumer. In that case, the hotel could rent the videos tax free from COMPANY under the resale exemption, but it would be required to collect the sales tax from its guest. We do not understand this to be your practice.