Was optional travel-protection insurance separately billed by a Virginia vacation-rental manager subject to sales tax?

Subject

Separate charges for the travel protection insurance are not taxable

Plain-English summary

Virginia removed the tax and related interest on separately stated travel-protection insurance because it was optional and not part of the vacation accommodation. Guests chose whether to purchase it and received an additional charge only if they elected coverage.

The vacation-rental manager did not represent that insurance was included with the lodging and was not a party to the insurance contract. That contract existed between the guest and the insurance provider.

Although charges made in connection with accommodations are generally taxable, these facts showed that the insurance was a separate transaction rather than a service sold as part of the room or lodging charge.

What this means for you

• Separately stating a charge helped but was not the only factor.
• Customer choice and a direct guest-insurer relationship supported separate treatment.
• Mandatory, bundled, or manager-provided protection may be treated differently.

Citations and references

• 23 VAC 10-210-730(A), (C).
• P.D. 95-17 and P.D. 96-295.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 08-37

Original ruling text

April 10, 2008

Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *:

This is in response to your letter in which you seek correction of the retail sales and use tax assessment issued to * (the "Taxpayer") for the period October 2003 through August 2006. I apologize for the delay in responding to your appeal.

FACTS

The Taxpayer operates a real estate company specializing in vacation rental management for beach homes in Virginia. The Taxpayer was audited by the Department and assessed tax and interest for the aforementioned period. As a result of the Department's audit, tax was assessed on separately stated charges for travel protection insurance.

The Taxpayer contests the application of the tax to the above charges and contends that the travel protection insurance is not a charge connected with the rental of the vacation property. The Taxpayer contends that the travel protection insurance should be exempt from retail sales and use tax because the charge is separately stated on the invoice and the Taxpayer's customers have a choice of whether or not to purchase the travel protection insurance.

DETERMINATION

Title 23 of the Virginia Administrative Code (VAC) 10-210-730 A addresses the application of the tax to rentals of rooms and accommodations to transients and states:

The tax applies to the sale or charge for any room or rooms, lodgings or accommodations furnished to transients by any hotel, motel, inn, tourist camp, tourist cabin, camping grounds, club, or other similar place.

Further, Title 23 VAC 10-210-730 C discusses charges made in connection with charges for rooms and accommodations and states the following:

Any additional charges made in connection with the rental of a room or other lodging or accommodations are deemed to be a part of the charge for the room and are subject to the tax.

As noted in Public Document (P.D.) 95-17 (2/2/95), services sold in connection with accommodations are taxable as part of the charge for the room. In this case, however, the travel protection insurance charges at issue are not part of the accommodations offered to the guests. For instance, the Taxpayer does not hold out to its customers that the charge for furnishing accommodations includes travel protection insurance. In each instance, the customer has a choice as to whether or not to purchase the travel protection insurance. If the customer elects to purchase the insurance, then the customer is billed an additional charge. Furthermore, the Taxpayer is not a contracting party to the insurance transaction. The insurance contract exists between the guest and the insurance provider.

The information provided demonstrates that the insurance charges at issue are not sold in connection with the Taxpayer's accommodations and are exempt of the tax when separately stated on invoices furnished to the Taxpayer's customers. This determination is consistent with P.D. 96-295 (10/21/96).

Based on the foregoing, the separate charges for the travel protection insurance are not taxable. Accordingly, the audit will be revised to remove the tax and associated interest assessed on all purchases of travel protection insurance.

The regulation and public documents cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's website. If you have any questions about this determination, you may contact the Department's Office of Tax Policy, Appeals and Rulings, at *.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-1298158970.i