New York Rules that Hotel is Not Entitled to Sales Tax Credit for Continental Breakfast

As illustrated in a recent New York decision, the taxability of amenities provided by hotels, such as continental breakfasts, can be complicated.

By Tina Chunn, SALT senior manager

Hotels frequently add additional amenities to attract guests to their properties. However, the tax implications of these amenities can become complicated when it is a taxable service or product that is provided. On July 19, 2016, the State of New York Tax Appeals Tribunal issued a decision denying a hotel a sales tax credit for continental breakfast provided to its guests free of charge. [1]

When renting a room, the hotel provided a continental breakfast to all registered guests as part of the room rate. The continental breakfast was not separately stated on the guests’ bills, and the guests were not given an option to decline the breakfast to lower the room rate. The continental breakfast is provided by a restaurant at the hotel that serves meals throughout the day. The hotel has an existing contract with the restaurant whereby the hotel agrees to pay for the continental breakfasts provided to its guests. When the restaurant charged the hotel for the meals, it included sales tax which was paid by the hotel. [2] The hotel then claimed a credit on its sales tax returns for the taxes paid to the restaurant for the purchases of the continental breakfasts for its guests because it viewed itself as reselling the meal to the room occupant. New York denied the credit and issued an assessment both to the hotel and to an individual who was a responsible officer.

The Administrative Law Judge (ALJ) concluded that continental breakfasts do not meet the sale for resale exclusion because the sales tax on hotel occupancy does not contain a resale exclusion. [3] Additionally, the continental breakfast was not documented as a separate sale. Rather, the hotel charged its guests one rate for hotel service. Therefore, the full charge for the room qualified as “rent” subject to the sales tax on hotel occupancy because rent is defined to include “charges for accommodations, services, facilities, amenities, and items that are incidental to the occupancy of the room or rooms, whether those charges are separately stated or included as one sum in the rate for the room or rooms.” [4] Therefore, the continental breakfasts were not resold, but were part of the service of the room rental.

The hotel tried to assert that New York had changed its position as a result of the acceptance by the Department of the applied credit in a prior audit. However, the hotel was unable to prove the Department advised them to take the sales credit during the course of the audit. Failure to identify an improper credit in audit does not preclude the denial of the credit in future audits.

The hotel further argued that to deny the credit would result in double taxation of the continental breakfasts since the hotel paid sales tax to the restaurant and now the guest is essentially paying tax on the breakfast as part of the tax paid on the room. However, the ALJ noted that since it has already concluded that the hotel does not resell the breakfasts but instead provides them as part of its hotel service, there is no double taxation issue. This is no different than any service provider that incurs sales tax on goods purchased in order to provide its service.

This case serves to remind us to review the implications of sales tax when offering other items and services as part of the room rental. These additional services could be considered as an amenity service and not a separate sale. In addition, this issue arises for any service company that purchases property in order to provide its service. If the business does not charge for any incidental property provided to the customer as part of the service, then the business may not treat itself as reselling that property and must pay sales/use tax at the time of its purchase.

HA&W’s SALT team can assist you in navigating these complex transactions and their sales and use tax requirements. Further, as state rules continue to change, we strive to keep our clients advised of these important issues and developments in state and local taxes in order to help them address their specific tax situations. We will continue to monitor these and other significant sales and use tax developments, and we will include any updates in future issues of the HA&W SALT Newsletter.

Contact Tina Chunn, SALT senior manager, at or Jeff Glickman, partner-in-charge of Aprio’s SALT practice, at for more information.

This article was featured in the September 2016 SALT Newsletter. To view the newsletter, click here.

[1] Decision DTA Nos. 825405, 825505 and 825821, State of New York Tax Appeals Tribunal, July 19, 2016.

[2] It is worth noting that prior to 2002, the hotel had provided resale certificates to the restaurant for the purchase of these continental breakfasts. However, in 2002, the restaurant was audited by the state of New York and advised that the resale certificate was not applicable and the restaurant should be charging the hotel sales tax on the continental breakfasts for its guests. After the audit, the hotel began taking a credit on its sales tax returns for the amount of sales tax paid to the restaurant for the breakfasts. Subsequently, the hotel was audited through 2006, and the Department did not deny the credit at that time.

[3] See N.Y. Tax Law § 1105(e).

[4] 20 NYCCR 527.9(b)(7)(i).

Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.