Tax Type
Retail Sales and Use Tax
Description
Hotel telephone charges government employees
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
05-02-1988
May 2, 1988
Re: Virginia Code §58.1-1821 Application
Retail Sales and Use Tax
Dear*****************
This is in reply to your letter in which you make application for correction of the sales and use tax assessment issued to*************as the result of the department's most recent audit.
FACTS
*********** (Company), operates a hotel in Virginia. As is common practice in the hotel industry, the amount that a customer is charged for making a long-distance telephone call is greater than the amount that the hotel is required to pay to the telephone company for that same call. The department assessed tax based upon a 40% markup on the charge made to customers for making long-distance telephone calls. You contend that the actual amount of markup on long-distance telephone calls varies from 5% to 45% depending on the telephone company used.
The second issue that you raise is in regard to the determination by the department that Company has been exempting certain individuals from paying the tax on the rental of rooms erroneously. You feel that you were discriminated against because in previous audits and in audits of other local hotels, the auditors have never questioned this item or the exemption certificates accepted.
DETERMINATION
I will address the second issue that you have raised first. The department's policy in regard to the "governmental exemption" and its application to the meals and lodging of government employees has been consistent since 1966. Currently, it is expressed in Virginia Regulation 630-10-45, which in part provides:
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- if a federal employee is traveling on government business and payment for meals and lodging is made directly by the federal government pursuant to a purchase order (e.g., by direct billing to government or use of government credit card), no tax will apply. However, if the employee pays for meals and lodging with personal funds and will be reimbursed by the government or utilizes a travel advance, no exemption is available even though the employee may be traveling pursuant to official government orders.
- if a federal employee is traveling on government business and payment for meals and lodging is made directly by the federal government pursuant to a purchase order (e.g., by direct billing to government or use of government credit card), no tax will apply. However, if the employee pays for meals and lodging with personal funds and will be reimbursed by the government or utilizes a travel advance, no exemption is available even though the employee may be traveling pursuant to official government orders.
and
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- No exemption is provided for state and local government employee purchases of meals or lodging whether purchases are pursuant to required official purchase orders or not. (Emphasis added.)
As you can see from the above regulation, Company was in error in exempting the charges to state and local government employees and the charges to federal employees who paid with personal funds. Notwithstanding this policy, I agree with the action of the department's auditor in allowing the exemption in any case in which you accepted a certificate of exemption in good faith. If you can produce any additional certificates of exemption that Company accepted in good faith during the audit period, these too will be removed from the audit.
However, I must emphasize that in the future, Company should not accept a certificate of exemption from a government employee unless the charge is exempt under the provisions of Virginia Regulation 630-10-45. As set forth in this Regulation, the exemption is available to a federal employee only when payment for meals and lodging is made directly by the federal government pursuant to a purchase order (e.g., by direct billing to government or use of government credit card). Meals and lodging for federal employees paid for by other means will be subject to the tax. Further, meals and lodging purchased by state employees are taxable regardless of the manner of payment.
Based upon the circumstances surrounding the factual dispute as to the exact amount of taxable markup applied to telephone calls, the department is willing to revise this item of the audit. Please submit your estimate of the average markup applied to long-distance telephone calls (with supporting documentation) to the department's Technical Services Section within the next thirty days. In addition, the department agrees to waive the penalty portion of the assessment upon the payment of the revised tax and interest due.
Your check *********which you submitted for the uncontested portion of the audit, has been deposited.
If you have any additional questions or concerns, please do not hesitate to contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner