New York: Co-Vendors are Jointly Responsible for Taxes
- Sales Tax News
- Oct 31, 2012 | Gail Cole
Do you ever wonder how conferences at hotels are arranged, paid for, and taxed? Probably not, unless you're involved with arranging, funding, or collecting taxes for such events. Yet in order for events to run smoothly, a great deal of organization and coordination takes place off stage. With respect to the taxation of such events, it's interesting to peek behind the curtain. Really.
A recent case reviewed by the New York Department of Taxation and Finance pertains to sales tax liability for AV services used during functions located in hotel conference rooms and meeting spaces. A hotel that serves as a venue for events requiring AV (audio/visual) equipment and services asks two questions:
1. Is it purchasing AV services from the AV provider?
2. Would it be treated as the vendor of such AV services by the AV provider at its hotel location?
In New York State, there is a tax imposed upon "[t]he receipts from every retail sale of tangible personal property… ." (Tax Law § 1105(a)). Except when there's not. According to another tax law, "a sale of tangible personal property for the use in performing certain enumerated services is not considered to be a retail sale and is not, therefore, subject to tax." (Tax Law § 1101(b)(4)(i)(A). In this case, who is purchasing the AV services, and who is selling them?
If the hotel contracted with the customer to provide AV services and then hired the AV provider to provide them, "the sale of such service to the [hotel] would be subject to tax." (TSB-A-12(25)S). However, that is not what happens here.
The hotel contracts with one specific AV provider, which operates as an independent contractor. Pursuant to the contract, the AV provider must follow certain guidelines, including, but not limited to, "rules and regulations relating to the appearance and conduct of the AV provider's employees." In return, the hotel directs customers to "meet with the on-site representative of the AV provider." Customers are not required to use that AV provider, and if they decide to work with the AV provider suggested by the hotel, "the customer must enter into a separate contract with the AV provider… ."
With respect to the AV service, the AV provider and its employees "are the only ones which take direction from, and provide [AV] service to, the customer…." Hotel staff doesn't get involved. The hotel does not purchase either equipment rental or AV services from the AV provider. The AV provider sells its services directly to the customer. (TSB-A-12(25)S).
The customer pays for the AV services. However, "the hotel may collect from the customer the entire fee for the event, including the amounts for the AV services." Indeed, the hotel frequently does so. Yet if the customer fails to pay for the AV services through the hotels' master account, it is the AV provider that "bears the risk of loss for its charges… and has the responsibility to collect the amounts due directly from the customer… ." (TSB-A-12(25)S).
The New York Department of Taxation and Finance determined that "the hotel and the AV provider are co-vendors for the purposes of the Tax Law..." because:
- The hotel and the AV provider have a contract stipulating guidelines for the AV services;
- The AV provider's services reflect upon the hotel, and there is "a shared interest between the hotel and the AV provider"; and
- "[t]he hotel often collects the receipts received on the AV provider's behalf."
As a co-vendor of AV services, the hotel is "jointly and severally liable for any sales tax due on the sales of AV service contracts if it collects the receipts and then turns those receipts over to the AV provider, and the AV provider subsequently fails to remit the tax due on such sales." Similarly, the AV provider is "jointly and severally liable" for taxes collected by the hotel on the AV provider's behalf. (TSB-A-12(25)S).
In other words, if the hotel collects sales tax for the AV provider's services, it has to remit it. If it doesn't, the NY Department of Taxation and Finance can hold the AV provider responsible for the tax. If the AV provider collects sales tax or is given receipts from the hotel for its services, it has to remit it. If it doesn't, the NY Department of Taxation and Finance can hold the hotel responsible for the tax.