When can a Virginia hotel stop charging sales tax on a long-term guest's room, and what proof does it need if the exemption is questioned on audit?

Plain-English summary

A Virginia hotel was audited for retail sales and use tax (January 2016 through December 2018). Testing a three-month sample, the auditor found a variance between the hotel's property-management system and the exempt sales it reported on its monthly ST-9 returns, which understated taxable sales. The hotel appealed, arguing the disputed room charges were exempt because those rooms were rented for at least 90 consecutive days. The Tax Commissioner upheld the assessment.

The 90-day accommodations exemption. Virginia exempts room charges for accommodations furnished to a transient for more than 90 continuous days by a hotel, motel, inn, and similar places (Va. Code § 58.1-609.5 9). Critically, the regulation spells out the mechanics: the hotel charges tax as normal, and after the guest has occupied the room for 90 continuous days, the dealer may refund the tax actually collected and then deduct those charges from gross sales on a later return (23 VAC 10-210-730 B). In other words, the exemption is applied by refund/deduction once the threshold is reached — not by treating the charges as exempt from the start.

What went wrong. The hotel's property-management system was programmed correctly: it charged tax up to the 89th consecutive night and credited the guest's bill once the 90-day threshold was hit. But on its monthly ST-9 returns, the hotel anticipated that certain rooms would end up occupied for more than 90 days and reported those charges as exempt in advance — before the 90-day threshold had actually been reached. That is effectively claiming the exemption early, and it created the variance between the system (correct) and the returns (understated taxable sales). The Department's longstanding policy is that exempt room charges may be claimed only after the 90-day threshold is met (P.D. 90-76, 10-251).

Why the taxpayer lost on proof. With its appeal the hotel submitted just one guest folio for each of the three sample months. Those folios confirmed the system correctly credited tax after the 90th day, but they did not explain the monthly variances the audit found, and no other explanation was offered. An assessment by the Department is prima facie correct, and the burden is on the taxpayer to prove it wrong (Va. Code § 58.1-205). Because the hotel didn't produce documentation showing the assessment was incorrect, it did not meet that burden — the assessment was upheld, with no additional interest if paid within 30 days.

The fix going forward. Report the room charges in gross (taxable) sales until the 90-day threshold is met, then take the deduction for the charges previously reported as taxable in the deductions section of the ST-9 after the threshold is satisfied.

What this means for you

Hotels, motels, and other lodging providers

The 90-day exemption is real, but it's applied after the fact, not in anticipation. Charge and remit tax on a long-stay guest's room until the guest actually reaches 90 continuous days; once they do, refund the tax collected and deduct those charges on a later ST-9. Reporting a room as exempt because you expect the guest to stay past 90 days — even if they ultimately do — is claiming the exemption too early and will show up as a variance on audit.

Anyone whose books and tax returns don't match

An auditor comparing your point-of-sale or management system to your filed returns will treat an unexplained gap as understated tax. If your system is right and your return is wrong, the return is the problem. Be ready to explain every variance with transaction-level documentation, not just a sample that proves an unrelated point.

Businesses appealing an assessment

The assessment is presumed correct (§ 58.1-205); you have to prove it wrong with documentation that actually addresses the auditor's findings. Folios that confirm you did one thing correctly won't overcome the presumption if they don't explain the specific discrepancy the audit identified.

Common questions

Q: When can a Virginia hotel stop charging sales tax on a long-term guest?
A: The exemption is for stays of more than 90 continuous days (Va. Code § 58.1-609.5 9). In practice you charge tax as usual and, once the guest reaches the 90-day threshold, refund the tax collected and deduct those charges on a later return (23 VAC 10-210-730 B). You cannot treat the charges as exempt before the threshold is reached.

Q: The guest ended up staying more than 90 days. Weren't those early nights exempt all along?
A: You still report and remit tax on them until the 90th continuous day, then apply the exemption by refund and deduction. Reporting them as exempt in advance — as this hotel did — is claiming the exemption too early and understates taxable sales.

Q: My management system taxed everything correctly. Why was there still an assessment?
A: Because the returns didn't match the system. The hotel's system was correct, but its ST-9 returns reported some charges as exempt before the 90-day threshold, creating a variance. The assessment addressed the return-level understatement.

Q: I gave the auditor guest folios. Why didn't that win the appeal?
A: The folios confirmed the correct post-90-day credit but didn't explain the monthly variances the audit found. An assessment is prima facie correct (§ 58.1-205), so you must produce documentation that actually rebuts the specific findings — which these folios did not.

Citations and references

Statutes and regulations:

• Va. Code § 58.1-203 — Department's authority to interpret and enforce the tax laws
• Va. Code § 58.1-609.5 9 — exemption for accommodations furnished to a transient for more than 90 continuous days
• Va. Code § 58.1-205 — assessment prima facie correct; burden on the taxpayer
• 23 VAC 10-210-730 B — after 90 continuous days, the dealer may refund the tax collected and deduct those charges on a later return

Authorities the Commissioner relied on (described here, not linked): prior public documents holding that exempt room charges may be claimed only after the 90-day threshold is met (P.D. 90-76, P.D. 10-251); and the strict-construction cases Commonwealth v. Community Motor Bus, 214 Va. 155 (1973), Commonwealth v. Research Analysis Corp., 214 Va. 161 (1973), and Golden Skillet Corp. v. Commonwealth, 214 Va. 276 (1973).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 25-94

Original ruling text

June 27, 2025

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

Dear * :

This is in response to your letter submitted on behalf * (the “Taxpayer”) in which you seek correction of the retail sales and use tax assessment issued for the period January 2016 through December 2018.

FACTS

An audit was conducted on the books and records of the Taxpayer, a Virginia hotel, for the period at issue. For the three-month sample period, the auditor found accounting variances between the Taxpayer’s management system and the amount of exempt sales reported on its monthly sales tax returns (Form ST-9) that resulted in an understatement of taxable sales. The underreported sales, in addition to other exceptions, were used to compute the audit liability. While it agrees with most of the exceptions, the Taxpayer filed an application for correction contending that the assessed room charges were exempt because they were rented for at least 90 consecutive days.

ANALYSIS

Strict Construction of Exemptions

The Department has the authority to interpret and enforce the laws of the Commonwealth governing taxes in accordance with Virginia Code § 58.1-203. With regard to such interpretations, settled case law requires strict construction of sales and use tax exemptions. Where there is any doubt as to the application of an exemption, the doubt is resolved against the one claiming the exemption. See Commonwealth v. Community MotorBus , 214 Va. 155 (1973); Commonwealth v. Research Analysis Corporation , 214 Va. 161 (1973); and Golden Skillet Corp. v. Commonwealth, 214 Va. 276 (1973).

Accommodations Exemption

Virginia Code § 58.1-609.5 9 provides an exemption for “[t]he 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 consideration.” Title 23 of the Virginia Administrative Code 10-210-730 B further provides that:

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.

During the audit, a variance was noted between exempt sales reported on the sales tax returns filed with the Department and exempt sales reported from the property management system. The auditor’s analysis indicated that the variance was due to a discrepancy in the way tax exempt room charges were accounted for between the two items.

Upon further investigation, the auditor found that the property management system was correctly programmed to charge tax on room charges up to the 89th consecutive night of a guest stay, and credit the guest’s bill once the 90-day threshold had been reached. However, in completion of its Virginia returns, the Taxpayer anticipated certain guest rooms would be occupied for more than 90 days. Although taxed in the property management system, the Taxpayer treated these sales as exempt on the Form ST-9. Under these circumstances, the Taxpayer was essentially claiming hotel room charges were exempt before the 90-day threshold had been reached.

Under the Department’s longstanding policy, exempt room charges may only be claimed after the 90-day threshold has been reached. See P.D. 90-76 (4/20/1990), and P.D. 10-251 (11/10/2010).

The Taxpayer’s submission of documentation with its application for correction consisted of one guest folio for each of the three sample months. Although this submission confirmed the correct credit of taxes after the 90th day of a consecutive stay, the folios themselves do not adequately explain the monthly variances found in the three sample months and no other explanation of the variance was submitted.

DETERMINATION

Virginia Code § 58.1-205 provides that any assessment of tax by the Department is deemed to be prima facie correct and that the burden is on the taxpayer to prove the assessment is erroneous or incorrect. In this instance, the Taxpayer has not provided documentation to support its contention that the assessment of tax is incorrect. Accordingly, the Taxpayer has not met the burden of proof requirement.

Based on this determination, the assessment is upheld. An updated bill will be mailed to the Taxpayer shortly. No additional interest will accrue provided the outstanding assessment is paid withing 30 days of the date of the bill.

In the future, the Taxpayer should follow the instructions from the previously referenced regulation. Applicable room charges should be reported in gross sales until the 90-day threshold is met. The dealer may deduct the corresponding room charges previously reported as taxable in the deductions section of the monthly sales tax return (ST-9) after the threshold is satisfied.

The Code of Virginia sections and regulation cited are available online at law.lis.virginia.gov. The public documents cited are available at tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this determination, you may contact * in the Office of Tax Policy and Legal Affairs, Tax Adjudication and Resolution Division, at or **.

Sincerely,

James J. Alex

Tax Commissioner

Commonwealth of Virginia

AR/2182.Z

Related Documents

90-76

10-251

24-140