State and Local Tax Team
03.27.19 | Berdon Industry Insights
How New York City (NYC) treats banquet/rooms for hotel occupancy tax purposes has been briefly covered in the Primer on Hotel Occupancy Tax in New York City article focused on the imposition of hotel occupancy tax in NYC. However, this topic requires further analysis of the complexities involved with the rental of banquet/meeting rooms as it relates to NYC hotel occupancy tax.
NYC hotel room occupancy tax must be charged on the rental of any room in a hotel. However, if a room has been certified as a place of assembly by the NYC Department of Buildings, or if banquet or catering contracts indicate the expected attendance to be 75 or more persons, the room will be considered a place of assembly and thus will not require the hotel operator to charge hotel occupancy tax.
For NYC hotel room occupancy tax purposes, a place of assembly is any room or space in which 75 or more persons gather for religious, recreational, educational, political, or social purposes, or in an outdoor space (e.g., a rooftop lounge) in which 200 or more persons gather for any of these reasons.
Setting the Record Straight
Almost no state, county, or city in the U.S. imposes hotel occupancy taxes (or similar taxes) on rentals of meeting or banquet rooms. However, NYC has decided that a banquet or meeting room is a hotel room unless it meets certain criteria. Additionally, for New York State sales tax purposes, a “Place of Assembly” is a room used for purposes other than sleeping and living accommodations and used for the purposes herein described.
NYC has an extra clause in its regulations which states that either the guest checks/contracts must show expected attendance of 75 or more people, or the room must have a valid Place of Assembly Certificate from the NYC Department of Buildings. This might seem insignificant: however, many NYC hotel occupancy tax audits show that taxpayers get severely impacted on the validity of their Place of Assembly Certificates.
How to Ensure Being Tax Exempt
In order to be exempt from charging tax on a space that has a valid Place of Assembly Certificate, a hotel must first receive an inspection from the NYC Fire Department (FDNY) and then obtain a Place of Assembly Certificate from the NYC Department of Buildings. Once the certificate is in place, the hotel operator can stop charging the hotel occupancy tax, plus the $2 NYC hotel occupancy fee per room. However, the Place of Assembly Certificates are not always accepted as blanket exemptions for purposes of this tax.
For example, the Department of Buildings initially provides the Place of Assembly Certificate on the space as a whole. However, if a room which holds a Place of Assembly Certificate can be converted to several smaller rooms by any means—such as folding walls, partitions, curtains, plants, or trees, and doors—each room must qualify independently as a Place of Assembly with separate certificates. If a hotel receives a Place of Assembly Certificate for a particular space and then subsequently divides it into multiple rooms to accommodate multiple events simultaneously without certification, the certificate already in place is invalid and the hotel is required to charge hotel occupancy tax, plus the $2 NYC occupancy fee per room, if the expected attendance listed on the contract will be less than 75.
Additionally, if the space is divided into separate rooms and it is determined upon inspection that each room can hold occupancy of less than 75 or 200, the rooms no longer qualify as a Place of Assembly and the hotel is required to charge the appropriate NYC hotel room occupancy taxes.
Hotel occupancy tax auditors are required to test the validity of Place of Assembly Certificates. When testing Place of Assembly Certificates, it is common practice for auditors to determine if two separate events occurred in the same space simultaneously. If this is discovered, and there is only one certificate for that space, the conclusion will generally be that the space was separated by some sort of partition, thus invalidating the original Place of Assembly Certificate.
NYC auditors will typically inspect every aspect of the space. If they see anything looking like a partition, it will be accounted for in their findings. This is where so many NYC hotels get negatively impacted. They believe the proper certificate was in place all along and never charged the correct NYC hotel occupancy taxes on such rentals. Very significant assessments can result from this type of error.
There is More
Many hotel operators believe that they will not have a problem if they do not charge customers a rental fee for the room. In certain instances, customers are only billed for food and beverage / catering charges, but NYC covers that as well. If a room does not qualify as a Place of Assembly and customers are not charged a rental fee for the meeting/banquet room, 20% of the total charge for food and beverage will typically be attributed to the use of the room and taxable as rent.
These amounts, extrapolated out over an audit period, could result in major assessments.
Hotel operators need to be concerned about these issues, as problems typically occur when hotel operators believe they have valid NYC Place of Assembly certificates in place but, upon audit, are otherwise notified. Once the certificate is invalidated under audit, events that do not qualify for the 75-or-more exemption become taxable, whether a room rental fee was charged or not.
NYC hotel operators should understand the complexities involved in this area and prepare accordingly.
Questions? Contact Wayne Berkowitz at 212.331.7465 | firstname.lastname@example.org or contact your Berdon advisor.
Berdon LLP New York Accountants