In an Advisory Opinion, TSB-A-12(25)S (N.Y.S. Dep’t of Taxation & Fin., Oct. 15, 2012), the Department of Taxation and Finance ruled that a hotel is a co-vendor with respect to sales of audiovisual (“AV”) equipment and services by a third party AV provider to the hotel’s guests. Therefore, it is liable for sales tax if the AV provider does not properly collect and remit the sales tax on those sales. However, the Department does not consider the hotel to be either a purchaser or a seller of such equipment and services.
The Petitioner in the Advisory Opinion owns a hotel, which serves as a venue for events that require the provision of AV equipment and services, such as conferences and professional meetings. The Petitioner does not own AV equipment, and has entered into a contract with an AV service provider (the “Provider”) that specifies that the Provider is the sole “in-house” provider of AV services and equipment, and that the Provider is to render such services at the hotel for the benefit of the hotel and its customers. Under the contract, the Provider pays the hotel a commission from the proceeds of its equipment rentals and AV services.
Hotel guests may use the Provider or select an outside AV vendor. If a hotel guest selects in-house AV services, the guest must enter into a separate contract with the Provider, and the hotel is not a party to such agreement. However, the hotel’s contract with the Provider sets forth guidelines that the Provider must follow in rendering its services at the hotel, including the types of equipment to be used at the hotel.
A hotel guest has the option to be billed through the guest’s master account at the hotel, or may choose to be billed directly by the Provider. When charges for the AV services are billed through the guest’s master account at the hotel, the charges are separately stated as a miscellaneous charge on the hotel’s bill. The hotel remits the total amount collected from its guests, including any sales tax charged, but excluding the hotel’s commission, to the Provider, which then remits the applicable sales tax paid by the hotel guests on its sales tax return.
In response to the Petitioner’s inquiry as to whether it would be considered to be the purchaser of the Provider’s services for its guests, the Department answered in the negative, finding that the Petitioner is neither purchasing the AV services nor selling such services as a component part of its catering services. Therefore, it is not required to pay sales tax on its purchases of those services.
On the other hand, the Department concluded that the Petitioner is a co-vendor of the services, based upon the following facts: (1) the hotel’s receipt of a considerable commission from guests’ use of the in-house AV services; (2) use of the master billing account to bill guests for AV services; and (3) Petitioner’s right to set forth guidelines that the Provider must follow in rendering its services at the hotel.
The Department concluded that, as a co-vendor, the Petitioner 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 Provider, and the Provider subsequently fails to remit the tax due on such sales. In addition, if the Petitioner collects the receipts on the Provider’s behalf, the Provider is jointly and severally liable for any sales tax due on the sale of AV services if the hotel fails to remit the tax due on such sales. Furthermore, the Petitioner and the Provider must each be able to substantiate how and when tax received from its co-vendor was remitted to the Department.
In the Advisory Opinion, the Department explains that if the Petitioner were to contract with its guests for the provision of the AV services, but then hire an AV provider to provide such services to its customer, the sale of such service to the Petitioner would be subject to tax. That was the conclusion of the Third Department in 21 Club, Inc. v. Tax Appeals Tribunal, 69 A.D.3d 996 (3d Dep’t, 2010), which held that the rentals of AV equipment by a provider to a restaurant and catering business were not exempt from sales tax as sales for resale where the business provided the use of the AV equipment to its catering customers. According to the Third Department, the 21 Club’s re-rental of the AV equipment was “purely incidental to the primary purpose of the business.”
In the Advisory Opinion, the Department essentially concludes that the double taxation of the AV equipment rentals that occurred in 21 Club – in that case, sales tax paid on the rental of equipment to the restaurant and sales tax collected on the catering charges that included the equipment charges -- can be avoided by having customers contract directly with an AV service provider, even if that provider has created an in-house relationship with the hotel. The Department reached a similar conclusion in a 2011 Advisory Opinion, TSB-A-11(27)S (Oct. 17, 2011), which also addressed the taxation of AV services at hotels.
Because the Department found a “shared interest” between the hotel and the AV provider in both Advisory Opinions, the Department has conferred co-vendor status on the hotel and the AV provider. There is very little precedent for co-vendor status in New York law. In fact, the Division’s regulations limit the concept of a “co-vendor” to a person operating a club or similar merchandising plan, or operating as an independent contractor representing a particular supplier selling tangible personal property. 20 NYCRR § 526.10(e). In light of the Department’s conclusion in the Advisory Opinion, an AV provider who enters into such an arrangement with a hotel should make sure that the hotel computes the correct amount of sales tax on the AV equipment and services, and the hotel has an interest in making sure that the AV provider remits that amount to New York in a timely fashion.