How should a hotel calculate Virginia's continuous-occupancy exemption when an airline rents a changing number of rooms each day?

Subject

Hotel that rents blocks of rooms on an ongoing basis to an airline.

Plain-English summary

The hotel could not measure continuous occupancy only in monthly blocks. Its airline customer rented a varying number of rooms every day. The hotel had been calculating exempt rooms by setting a cutoff on the first day of each month and looking back over the previous 90 days.

The Department ruled that the statute required continuous-day counting without a monthly cutoff. Each day began a new measurement period, so the hotel had to identify the number of rooms continuously rented across each rolling period. Under that method, the airline was entitled to a credit or refund for five additional rooms from February 13 through March 2.

To the extent earlier P.D. 90-76 could be read to require a first-of-the-month cutoff, P.D. 10-251 superseded it.

What this means for you

• Hotels with long-running block contracts needed a rolling daily occupancy calculation.
• Changes in the number of rooms did not eliminate the exemption for the minimum continuously occupied block.
• Once rooms qualified, the hotel could refund collected tax and deduct the refunded charges on a later return under the cited regulation.
• Earlier guidance could not be used to impose a monthly cutoff after this ruling.

Common questions

Did the Department dispute the airline's daily room counts?

No. The dispute concerned the counting method, not the number of rooms shown on the airline's manifests.

What relief did the ruling provide?

It allowed a sales-tax credit or refund for five additional rooms for the period from February 13 through March 2.

Citations and references

• Va. Code § 58.1-609.5(8).
• 23 VAC 10-210-730(B).
• Shelor Motor Co. v. Miller, 261 Va. 473, 544 S.E.2d 345 (2001).
• P.D. 90-76, superseded to the extent described in the ruling.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 10-251

Original ruling text

November 10, 2010

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This will reply to your letter in which you request a ruling on behalf of * (the "Taxpayer") concerning the exemption for hotel rooms occupied for ninety continuous days. I apologize for the delay in the Department's response.

FACTS

The Taxpayer is a hotel that rents blocks of rooms on an ongoing basis to an airline. The airline provides the Taxpayer with a monthly crew accommodation manifest that shows the number of rooms the airline's employees have occupied each day of the month. The number of occupied rooms may vary each day. Using this information, the Taxpayer computes a sales tax credit for the exempt rooms occupied by the airline's employees and credits this amount on the monthly invoice issued to the airline. The credit is given based on the exemption in Va. Code § 58.1-609.5 8.

RULING

Virginia Code § 58.1-609.5 8 provides an exemption from the retail sales and use tax for:

The sale or charges for any room or rooms, lodgings, or accommodations furnished to transients for more than 90 continuous days by any hotel, motel, inn, tourist camp, tourist cabin, camping grounds, club, or any other place in which rooms, lodging, space or accommodations are regularly furnished to transients for a consideration.

Title 23 of the Virginia Administrative Code 10-210-730 interprets this statute. Section B of the regulation addresses the ninety day rule for the exemption and states:

The tax does not apply, however, to rooms, lodgings or accommodations supplied to a guest for a period of 90 continuous days or more. After a transient has occupied a room or received other accommodations for 90 continuous days or more, the dealer furnishing the room or other accommodations may refund any sales tax actually collected from the person. In filing a subsequent return with the Department of Taxation, the dealer may deduct from gross sales in the place provided the amount of the charges for which the tax was refunded.

The Taxpayer bases its calculation of the sales tax credit for the number of rooms that qualify for the exemption on Public Document ("P.D.") 90-76 (4/20/90). This ruling discusses a hotel that proposed the use of an averaging method to calculate the number of continuously occupied rooms over a ninety day period for purposes of the exemption. The customer in this ruling is an airline and the facts are essentially the same as those in the Taxpayer's case. The ruling states "the only true figure that represents rooms occupied for ninety continuous days, would be the least number of rooms occupied on a given day during a continuous ninety day period." The ruling then grants permission for the hotel to calculate sales tax refunds for exempt rooms on the first clay of each month based on the least number of rooms occupied during the previous ninety day period. In essence, this method creates a cutoff point on the first day of each month for counting the number of days that the hotel's rooms are occupied.

Based on an analysis of the methodology described in P.D. 90-76 and used by the Taxpayer, I do not agree that ninety day periods can be set starting with the first day of each month for purposes of administering this exemption. The statute is clear that a room must be occupied for more than ninety continuous days to qualify for the exemption. The statute does not state that a specific method should be used to count consecutive days and it does not limit the ninety continuous day requirement in any way.

In Shelor Motor Co. v. Miller , 261 Va. 473, 479, 544 S.E.2d 345, 348 (2001), the Court stated, "it is well settled that when the language of a statute is plain and unambiguous, we are bound by the plain meaning of that language." Based on the plain language of the exemption statute, each day begins a new period for purposes of counting ninety continuous days. The Taxpayer does not dispute the number of rooms the airline claims to have rented during the period at issue. Thus, the airline in this case is due a sales tax credit or refund on the rental of five additional hotel rooms from February 13 through March 2.

I trust the foregoing responds to your inquiry. This ruling is based on the facts provided as summarized above. Any change in facts or the introduction of new facts may lead to a different result. To the extent that P.D. 90-76 can be read to require a cutoff point on the first day of each month for computing the number of days that a hotel's rooms are occupied, this ruling supersedes P.D. 90-76.

The Code of Virginia section, regulation and public document 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 web site. If you have any questions concerning this ruling, please contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-3816121554.S