Could a hotel-room content provider register once and remit Virginia's 10% Digital Media Fee for participating lodging facilities?

Subject

Content provider could remit the hotel Digital Media Fee for participating facilities

Plain-English summary

Virginia allowed the in-room content provider to register and remit the new Digital Media Fee for participating hotels and motels. Guests paid separately for movies and games, while the lodging facilities billed and collected the charges and retained a commission.

The fee was 10% of the full digital-media charge to the guest. No deduction was allowed for a lodging facility's commission or other credit. The content provider could register once, identify every participating facility as a separate business location, update that list monthly, file one monthly Form DM-1, and keep facility-level collection records.

Participating lodging facilities did not have to register or file monthly returns under the arrangement, but they remained responsible for accurate collection, timely remittance to the provider, and supporting records. Virginia could later require a hotel to register separately or revoke the overall arrangement.

What this means for you

• A centralized filer could handle the fee for multiple independent lodging locations only under Virginia's stated conditions.
• The 10% fee was calculated on the guest's full charge, before hotel commissions.
• Both the content provider and lodging facilities retained compliance and recordkeeping duties.
• The ruling did not determine retail sales and use tax treatment.

Common questions

Did the content provider need a separate registration for each hotel?

No. It registered once but had to list each independent facility as a separate business location and update the list monthly.

Could hotel commissions reduce the fee base?

No. The fee remained 10% of the charge to the guest without a commission deduction.

Could Virginia end the arrangement?

Yes. The ruling expressly allowed the Department to revoke it.

Citations and references

• 2009 Acts of Assembly, Chapter 531 (Senate Bill 1421).
• Tax Bulletin 09-5.
• Form DM-1, as identified in the ruling.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 09-114

Original ruling text

July 16, 2009

Re: Ruling Request: Digital Media Fee

Dear *:

This is in response to your letter requesting a ruling allowing * (the "Content Provider") to register as a Provider for the purposes of collecting and remitting the Digital Media Fee.

FACTS

The Content Provider provides movies, games and basic cable programming to guests in hotels, motels and other temporary lodging facilities in Virginia through the television sets located in guest rooms. While the basic cable programming is provided to guests free of charge, the movies and games ("digital media") are only available to guests for a separate charge. Although the charge is set by the Content Provider, it is billed to and collected from guests by the lodging facility on the bill with other charges related to the stay. The Content Provider invoices lodging facilities on a monthly basis for the digital media sold to guests in the previous month. The lodging facility remits the invoiced amount to the Content Provider after retaining a commission.

The Content Provider requests a ruling allowing it to voluntarily register to collect and remit the Digital Media Fee on behalf of certain lodging facilities.

DETERMINATION

Effective July 1, 2009, legislation enacted in the 2009 Session of the General Assembly, Senate Bill 1421 (2009 Acts of Assembly , Chapter 531), imposes a new Digital Media Fee on the in-room rental or purchase of digital media at the rate of 10 percent of the charge for the digital media. The Digital Media Fee is imposed in facilities offering guest rooms rented out for continuous occupancy for fewer than 90 days, such as hotels and motels. On May 21, 2009, the Department of Taxation ("TAX") issued Tax Bulletin 09-5 ("Tax Bulletin") to provide guidance to taxpayers regarding the new fee.

The Tax Bulletin provides that "each Provider must be registered with TAX to file the necessary returns and to remit the Digital Media Fee." "Provider" is defined as "any person who provides digital media to guests in temporary lodgings located in the Commonwealth who is or should be registered with the Department of Taxation as a Provider for purposes of the Digital Media Fee."

As set forth in the Tax Bulletin, each lodging facility would be considered a Provider liable for collecting and remitting the Digital Media Fee. However, for the convenience of the lodging facilities, TAX will allow the Content Provider to register as a Provider and collect and remit the Digital Media Fee instead of certain lodging facilities, subject to the conditions set forth below.

By registering with TAX, the Content Provider will be considered a Provider for purposes of the Digital Media Fee and will be responsible for fulfilling all of the requirements imposed on a Provider under Virginia law, including but not limited to the accurate collection and timely remittance of the Digital Media Fee, the timely filing of monthly returns, and the maintenance of records substantiating its compliance with these requirements. Additionally, as a Provider, the Content Provider shall allow TAX to audit such records.

Although the Content Provider may allow certain lodging facilities to collect the Digital Media Fee and remit it to the Content Provider for subsequent remittance to TAX, this arrangement does not in any way alter the calculation of the tax liability. The Digital Media Fee must be determined in the same manner as it would be if each hotel was performing the functions of a Provider, i.e. , the fee must calculated at the rate of 10 percent of the charge to the guest for the digital media. No deduction will be allowed for any commission or other credit or payment allowed to the lodging facility.

The Content Provider shall provide a copy of this letter to each lodging facility operator. Although lodging facilities that participate in this arrangement will not be required to register with TAX as Providers or to file monthly returns, this arrangement shall in no way relieve each lodging facility from its obligation to accurately collect the Digital Media Fee and to remit it to the Content Provider in time for the Content Provider to timely remit the Digital Media Fee collected to TAX. This arrangement shall also not relieve each lodging facility from the requirement of maintaining records necessary to substantiate that it has accurately collected and timely remitted the Digital Media Fee to the Content Provider. Upon notification from TAX, any lodging facility may be required to register with TAX as a Provider and to collect and remit the Digital Media Fee.

In order to register with TAX to collect and remit the Digital Media Fee, the Content Provider needs to register with TAX only once. On this registration, the Content Provider shall provide TAX with the name and physical address of each independent lodging facility it will be collecting from as a separate business location. The Content Provider shall also update TAX monthly on any additions or deletions to that list. The Content Provider should contact *, Registration Unit Supervisor, at *** to provide this information and to register as a Provider.

The Content Provider should only file one monthly Digital Media Fee Return, Form DM-1, with its payment of the Digital Media Fee. The Content Provider shall maintain records listing each lodging facility for which it collects the Digital Media Fee each month showing the amount of Digital Media Fee collected from each lodging facility, which it shall provide to TAX upon request.

This ruling only addresses the Digital Media Fee, and nothing in this letter should be construed as providing any determination regarding the Retail Sales and Use Tax. In the event that TAX is not satisfied with this arrangement, this arrangement may be revoked by TAX.

If you have any questions about this determination, you may contact * in the Office of Tax Policy, Policy Development Division at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

PDO/1-3578233581