by Harry Markowitz, Esq. (RIA)

The New Hampshire Department of Revenue Administration, in response to inquiries from hotel operators, has issued a technical information release that provides guidelines on the applicability of the Meals and Rentals (M and R) Tax to room bookings made through on-line booking companies, such as Orbitz, Expedia, Advanced Reservation Systems, Inc., and Hotel.com. ( New Hampshire Technical Information Release 2007-008, 11/29/2007 .)

On-line booking companies are hotel agents. On-line booking companies contract with hotels to purchase blocks of rooms at reduced rates. The booking companies, in turn, rent the rooms to end users, through on-line booking, at a mark-up over the reduced rate, which is usually considerably less than the going rate at the hotel. The Department considers on-line booking companies as the agents of the hotel operators with whom they contract. Operators must be registered with the Department and each location where it operates must be licensed. On-line booking companies are not "operators" within the meaning of the tax statute. They do not have an independent responsibility to collect and remit the taxes to New Hampshire. However, neither are they end users or occupants. Their role is to market the operator's product to a broader target audience than the New Hampshire operators may be able to achieve on their own. The New Hampshire licensed operator is the person responsible for collecting and remitting the correct amount of M and R tax. It is the responsibility of operators to be sure that they remit the correct amount of tax for on-line bookings.

Room rate tax applies to. It is the Department's position that the M and R statute ( N.H. Rev. Stat. Ann. § 78-A ) requires the tax to be calculated on the room rate paid for the occupancy by the end user, regardless of the hotel's going rate for the room and regardless of the contract amount between the operator and the on-line booking company. The M and R tax on hotel accommodations is a tax on the occupancy of a hotel room. Occupancy is defined as the use or possession, or the right to the use or possession, of any room in a hotel for any purpose. An occupant is the person who, for rent paid, has the right to the use or possession of any room in a hotel. The economic burden of the tax falls on the end user, not the operator or its agent. Given this statutory structure and the applicable case law, the amount the occupant pays to the on-line booking company for the room is the amount subject to the M and R tax.

For example, an on-line booking company purchases a block of rooms from a New Hampshire licensed hotel operator at a rate of $82 per room. The company charges the end user $100 for a room. The tax on the room would be 8% of $100, or $8. The tax is on the amount paid by the customer for the occupancy, not the amount paid by the agent. How that $8 is collected is a matter of negotiation between the operator and the on-line billing company. The operator, however, is the party responsible to the state.

Recording the transaction. The Department has received inquiries from smaller hotel operators concerned about how to reflect these transactions using off the shelf software programs. Transactions could be entered as follows, using the numbers in the above example: When the on-line booking company pays the operator for the room, the operator could reflect the sale of $100, tax payable to New Hampshire of $8, a booking fee expense of $18, and cash received of $90. The net income on the rental of this room could be reflected as the sale of $100 minus the $18 fee, or $82.


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