The Appellate Tax Board recently published its opinion in Eastover v. Commissioner, ATB Docket Nos. 147986-89 (3/15/89), providing for "recreational establishment" an exception from the general rules of the room occupancy excise. This Technical Information Release announces the position of the Department of Revenue on the decision.

Room Occupancy Excise: General Rule

The room occupancy excise is imposed on the transfer of occupancy, which is defined as "the use or possession, or the right to the use or possession, of any room or rooms…[including] the right to the use or possession of the furnishings or the services and accommodations accompanying the use and possession of such room or rooms." G.L. c. 64G, § 1(e).

Generally, the right to use the hotel, motel, or lodging house's recreational facilities or entertainment is considered the right to use "services and accommodations accompanying the use" of a room. If charges for the use or right to use recreational facilities or entertainment are not mandatory, and the operator separately states and reasonably allocates the price of the room rent and the recreational facilities or entertainment on both the bill to the guest and on the operator's books and records, the room occupancy excise is imposed only on the charge for the room rented. However, if charges for recreational facilities or entertainment are mandatory, the room occupancy excise is imposed upon the total charge (room rent and charge for the use or the right to use recreational facilities or entertainment), whether or not the charges are separately stated.

When a hotel, motel, or lodging house provides meals, rooms and recreational facilities, the following rules apply. If the operator separately states and reasonably allocates the sales price of the meal on both the bill to the guest and on the operator's books and records, the sales tax under G.L. c. 64H will apply to the sales price of the meals and the room occupancy excise will apply to the charge for the room and recreational facilities or entertainment as described above. If the sales price of the meals is not separately stated, the amount subject to room occupancy excise includes the sales price of the meal and the charge for the room, and may include the charge for recreational facilities or entertainment, as described above.

Recreational Establishment Exception After Eastover v. Commissioner

Mandatory charges for the use or right to use recreational facilities or entertainment at a "recreational establishment" are not included in the room rent subject to room occupancy excise as long as the operator separately states and reasonably allocates the price of the room rent and the recreational facilities or entertainment both on the bill to the guest and on the operator's books and records. The charges allocated to room rent are subject to the room occupancy excise, and the charges allocated to meals are subject to the sales tax. An allocation at a "recreational establishment" is reasonable only if it reflects the actual costs incurred in operating the establishment.

An establishment qualifies as a "recreational establishment" when:

1. the main purpose is to provide recreation, and rooms are merely a convenience to permit guests to enjoy the recreational facilities; and

2. the rooms lack the amenities routinely provided at a hotel or motel and the rooms are sparsely furnished, generally having no air conditioning, radio, television, telephone, or other amenities that would induce guests when not sleeping to spend time in the rooms; and

3. the operator's actual costs incurred in providing and maintaining the recreational facilities or entertainment constitute 25% or more of the total operating costs of the "recreational establishment."

/s/Stephen W. Kidder
Commissioner of Revenue

June 19, 1989

TIR 89-7