ORDERS:
FINAL ORDER AND DECISION
STATEMENT OF THE CASE
This matter is before the South Carolina Administrative Law Judge Division pursuant to the Petitioner's request for a contested case
hearing under S.C. Code Ann. § 12-60-460 (2000). The Petitioner requests review of the Department's Final Agency Determination,
issued on September 29, 2000. The Department found that during the time period between May 1, 1995 and April 30, 1998, (1) the
Petitioner failed to include food and beverage costs in computing the accommodations tax; and (2) the Petitioner did not pay sales
tax on the food and beverage which it withdrew from inventory.
FINDINGS OF FACT
Having observed testimony of the witnesses and exhibits presented at the hearing and closely passed upon their credibility, I make
the following Findings of Fact based upon a preponderance of the evidence:
- Notice of the time, date, place, and subject matter of the hearing was given to all parties in a timely manner.
- The Division has personal and subject matter jurisdiction in this matter.
- The Petitioner operates an inn in Pawleys Island, South Carolina.
- The Petitioner charged guests a fixed room rental rate, which included three meals per day at no additional cost. This charge was
mandatory, regardless of whether the guests actually consumed any of the meals.
- When the Petitioner purchased the food and beverages that were part of the room rental package, it did not pay sales tax to the
seller of these items.
- The Respondent's Field Services Division audited the Petitioner's records for the time period May 1, 1995 through April 30, 1998.
- The Respondent found the taxpayer allocated a portion of the room rental charge to a sleeping accommodations account and a
portion to a meals account. The Petitioner paid the seven percent accommodations tax on the sleeping accommodations account
and the five percent sales tax on the meals account.
- As a result of this audit, the Respondent determined the entire charge of the room package was subject to the seven percent
accommodations tax. The Respondent further determined the food and beverages withdrawn from inventory and provided to the
guests as part of the room package were subject to the five percent sales tax.
- An July 4, 1998, a proposed assessment was issued for additional tax and interest in the amount of $18,603.58 and $3,218.26,
respectively.
- The Petitioner timely protested the Respondent's assessment, and the Respondent issued a Final Agency Determination supporting
the findings of its Field Services Division.
- The Petitioner timely requested a contested case hearing before the Administrative Law Judge Division.
CONCLUSIONS OF LAW
Based upon the foregoing Findings of Fact, I conclude as a matter of law, the following:
- Since Petitioner's room rental rate included meals at no additional cost, the entire amount is subject to the accommodations rate.
S.C. Code Ann. § 12-36-920 (2000) imposes a sales tax upon accommodations and "additional guest charges" and provides, in
part, as follows:
(A) A sales tax equal to seven percent is imposed on the gross proceeds derived from the rental or charges for any rooms,
campground spaces, lodgings, or sleeping accommodations furnished to transients by any hotel, inn, tourist court, tourist camp,
motel, campground, residence, or any place in which rooms, lodgings, or sleeping accommodations are furnished to transients for a
consideration. This tax does not apply where the facilities consist of less than six sleeping rooms, contained on the same premises,
which is used as the individual place of abode. The gross proceeds derived from the lease or rental of sleeping accommodations
supplied to the same person for a period of ninety continuous days are not considered proceeds form transients. The tax imposed by
this subsection (A) does not apply to additional guest charges as defined in subsection (B).
(B) A sales tax of five percent is imposed on additional guest charges at any place where rooms, lodgings, or accommodations are
furnished to transients for a consideration, unless otherwise taxed under this chapter. The term additional guest charges includes, but
is not limited to:
(1) room services;
(2) amenities;
(3) entertainment;
(4) special items in promotional tourist packages;
(5) laundering and dry cleaning services;
(6) in-room movies;
(7) telephone charges;
(8) rentals of meeting rooms; and
(9) other guest services.
(Emphasis added).
The phrase "additional guest charges," as used above, was defined in Commission Decision #95-27. There, the Commissioners
determined "additional guest charges" meant "an amount which is added to the guest's room charge for a specific amenity or services
for the guest."
In South Carolina Revenue Ruling #98-21, the Department applied Section 12-36-920 and the definition found in Commission
Decision #95-27 to a variety of factual scenarios to provide taxpayers guidance in determining what charges are considered
"additional guest charges." This Revenue Ruling, which was phrased in question and answer form, provides in pertinent part as
follows:
- Q. If a hotel charges $100.00 for a room, and that price includes a continental breakfast for the guest, what tax rate applies to the
$100.00?
- The $100.00 charge is taxed at 7%. Since the continental breakfast is provided with the room, it is not an additional
guest charge. (The withdrawal of the food from the hotel's inventory is subject to the sales tax based on its fair
market value. See Code Section 12-36-90, Code Section 12-36-110 and Commission Decision #93-66.)
The conclusion reached in Revenue Ruling #98-21 is supported by the ALJD's decision in Anonymous Taxpayer v. South Carolina
Department of Revenue, Docket Nos. 97-ALJ-17-0263 and 97-ALJ-17-0379-CC. There, the court recognized the crucial inquiry in
determining whether a hotel charge is subject to the seven percent tax or the five percent tax is whether the charge is mandatory with
the rental of the room. If the hotel requires a guest renting only a room to pay for something included in the room fee, regardless of
actual use, the charge is mandatory and is taxed at seven percent. If the guest opts to purchase more than just sleeping
accommodations, the seven percent tax should be assessed only on the portion attributable to the mandatory charge for sleeping
accommodations.
Further support for Revenue Ruling #98-21 is found in Greystone Catering Company, Inc., v. South Carolina Department of
Revenue, 326 S.C. 551, 486 S.E.2d 7 (Ct. App. 1997). Greystone operated an Embassy Suites hotel that offered a package price for
rooms. Guests paid a fixed rate for rooms, which included breakfast and drinks at no additional cost. While acknowledging
Greystone did not argue this point directly in the case, the Court of Appeals indicated food and beverages which were part of a room
package were not addditional guest charges within the meaning of Section 12-36-920(B): "[i]f Greystone offered guests a choice of
accepting or rejecting the breakfast and drinks, and billed separately for these items, it could avoid paying the seven percent
accommodations tax and merely pay the five percent sales tax."
In the instant case, the taxpayer charged guests a fixed room rate, which included three meals per day at no additional cost. The
charge was mandatory, as guests were not given the choice of accepting or rejecting the meals. In fact, guests were required to pay
the fixed rate regardless of whether they actually ate the meals. Therefore, the meals charge was not an "additional guest charge"
because it was not "an amount which is added to the guest's room charge for a specific amenity or service for the guest." The
Department, the ALJD, and the Court of Appeals have all recognized the key issue in determining whether a hotel charge is subject
to the seven percent tax or the five percent tax is whether the charge was mandatory with the rental of the room. Here, the charge
was mandatory with the rental of the room, and therefore subject to the seven percent accommodations tax.
- The withdrawal of food and beverage from the taxpayer's inventory is subject to
sales tax. S.C. Code Ann. § 12-36-110(1)(c) (2000) defines "sale at retail" and "retail sale" as including "the withdrawal, use, or
consumption of tangible personal property by anyone who purchases it at wholesale." In addition, S.C. Code Ann. § 12-36-90(1)(c)
(2000) includes in its definition of "gross proceeds of sales" the fair market value of tangible personal property previously purchased
at wholesale which is withdrawn from the business or stock and used or consumed in connection with the business.
Where sales tax is not paid at the time of purchase, the Department has consistently applied the rule that "the last transaction for a
consideration is considered the taxable retail sale," relying on ARA Services v. South Carolina Tax Commission, 271 S.C. 146, 246
S.E.2d 171 (1978). The Department has defined the "last transaction" or the "final consumer" based on whether a charge for an item
is stated separately on the guest's bill. Greystone Catering, supra. If a charge for an item were stated separately, the guest would be
the final consumer when the guest paid the bill; if not, the hotel would be the "final consumer" when it withdrew the item from
inventory. Id.
In Revenue Ruling #98-21, the Department determined if a hotel includes food and beverages in the price charged for a room, the
withdrawal of the food and beverage from the hotel's inventory is subject to sales tax based on the fair market value of the item. The
Court of Appeals and the ALJD have both adopted the Department's longstanding interpretation. In Greystone Catering, supra, the
Court of Appeals found that Embassy Suites' "complimentary" food and beverages provided with every room rental were subject to a
five percent sales tax as withdrawals from inventory. The court stated the last transaction for consideration is usually considered the
taxable retail sale. Because Greystone's "complimentary" food and beverages were not stated separately on the guest bill, the Court
of Appeals reasoned Greystone, not the guest, was the final consumer and liable for the tax when it withdrew the items from
inventory.
The Court of Appeals rejected Greystone's double taxation argument, finding Greystone could have avoided this situation by billing
separately for items it advertised as "free." It was recognized that while there is no per se prohibition on double taxation, there is a
strong presumption against it. Therefore, a statute will not be construed as imposing a double tax unless that legislative intent is
clear. The court concluded "[a] finding that withdrawals from inventory are not taxable under these circumstances would be contrary
to the legislature's intent."
The ALJD addressed a similar issue in Anonymous Taxpayers v. South Carolina Department of Revenue, supra. The court found the
taxpayers' withdrawal of golf balls, tees, towels and caps form their inventory, which they purchased at wholesale, was subject to a
five percent sales tax. The court concluded "because taxpayers did not bill separately for these items, they were the final 'consumers,'
liable for a 5% tax on the items as they withdrew them from inventory."
In this case, the taxpayer charged guests a fixed room rental rate, which included meals at no additional cost. The taxpayer did not
include an identifiable separate charge for the food and beverages on the guests' bills. Therefore, taxpayer was the "final consumer"
of the food and beverages and was liable for the five percent sales tax when it withdrew these items from inventory. Additionally,
since the taxpayer did not bill separately for the food and beverages, it was not being required to pay taxes twice on the same goods.
A finding to the contrary would violate the legislative intent of the statute.
The facts of Anonymous Taxpayers, supra, are dramatically different than those of the instant case. InAnonymous Taxpayers, supra,
when a guest rented a room, he was not automatically charged for a golf package. The purchase of a golf package was optional. In
the instant case, however, guests are automatically charged for meals. The purchase of meals is mandatory with the rental of the
room. Therefore, Anonymous Taxpayer, supra, does not support the taxpayer's position.
Commission Decision #92-32 considered the case of a taxpayer-hotel that had a certain class of rooms it rented for an additional
amount above the charge for its regular rooms. The hotel offered a club program in which guests could receive special privileges by
paying an optional additional $20.00 room charge, primarily for buffets. The taxpayer-hotel did not report the withdrawals of food
from inventory for sales tax purposes. Rather, it paid sales tax on the $20.00 club fees by adding them to the guests' hotel bills. The
Commission concluded the $20.00 charge was the last consideration paid for the retail sale of food items. Therefore, there was no
sales tax due on the withdrawal from inventory. This decision was not based on the quantity of food withdrawn from inventory, but
on the nature and structure of the optional food charge. In addition, this decision did not conclude the food was a principal portion of
the taxpayer's business operation as a whole, but only that the buffets were a principal portion of the optional additional club charges.
The instant case is factually distinct from Commission Decision #92-32 for at least two reasons. First, meals are not an optional
additional item hotel guests may purchase to entitle them to special privileges; they are a required part of each room rental. Second,
there is no optional identifiable separate charge on the guests' bills.
A taxpayer must accept the consequences of how it chooses to structure a transaction. Citizens and Southern Systems, Inc., v South
Carolina Tax Commission, 280 S.C. 138, 311 S.E.2d 717 (1984). To base tax consequences of a transaction on how it could have
been structured would require rejection of the established tax principle that a transaction is to be given the tax effect in accord with
what actually occurred and not in accord with what might have occurred. Id.
In the instant case, the taxpayer chose to include food and beverages as a mandatory part of a room rental package and not provide an
identifiable separate charge for food and beverages on guests' hotel bills. By making this choice, the taxpayer is liable for the seven
percent accommodations tax and the five percent sales tax on the withdrawal of food and beverages from the inventory.
ORDER
Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby
ORDERED that the Petitioner pay additional tax in the amount of $18,603.58 plus interest.
IT IS SO ORDERED.
____________________________________
CAROLYN C. MATTHEWS
Administrative Law Judge
April 17, 2001
Columbia, South Carolina |
