Letter Ruling  Letter Ruling 20-2: Applicability of the Room Occupancy Excise to Complimentary Rooms Provided by a Gaming Establishment

Date:	06/25/2020
Referenced Sources:	Massachusetts General Laws

I. Introduction

You have requested a letter ruling regarding the application of the Massachusetts room occupancy excise, G.L. c. 64G, to ------------------------------------------------------------------ (“Company”) with respect to the provision of complimentary hotel rooms (“room comps” or “comps”) by Company.

II. Facts

The following is your representation of the facts upon which we base this ruling. Company is licensed by the Massachusetts Gaming Commission to operate a gaming establishment in Massachusetts.  Company owns and operates a hotel and casino which are physically connected, and together with food and beverages and retail outlets, comprise the gaming establishment. 

Company, following gaming industry practice and as part of its marketing strategy, has authorized its marketing personnel to issue room comps to certain of its patrons.  The decision to issue, or not to issue, discretionary room comps to a specific patron is based primarily, if not totally, on the patron's likelihood of gaming upon visiting the property for which the hotel room comp is issued.

Company’s marketing strategy recognizes that past gaming activity has relevance as to whether a patron will continue to gamble in the future.  Factors such as past gaming activity, "theoretical win" (a gaming industry term for the expected house win from a player), player loyalty and host/casino relationship are often used in determining whether to offer a room comp and the value of the comp offered.  The underlying purpose of such comps is to encourage players to visit the gaming establishment and stay there longer, and to incentivize future gaming and other spending on Company property.  These offers are, by their nature, highly discretionary by those authorized by Company to provide them.  You characterize the issuance of a room comp under Company’s particular marketing strategy as a patron incentive to gamble in the future, not as an award for past gaming activity.  

You indicate that Company’s room comp marketing strategy is not formally outlined in any written procedures or policies.  The issuance of room comps is totally discretionary with management, and no patron has any legal entitlement, whatsoever, to a discretionary comp.

III. Issue

Are rooms provided under Company’s discretionary hotel room comps strategy subject to the room occupancy excise beyond any actual rent paid in money?

IV. Ruling

Rooms provided under Company’s discretionary hotel room comps strategy are not subject to the room occupancy excise beyond any actual rent paid in money.

V. Discussion

A.  General Application of State and Local Room Occupancy Excise to Complimentary Rooms

The Massachusetts state room occupancy excise is imposed on transfers of occupancy for a period of 90 consecutive days or less of any room or rooms in a bed and breakfast establishment, hotel, lodging house or motel in Massachusetts, unless the transfer is otherwise exempt. G.L. c. 64G, § 3.[1]  Neither the state nor local room occupancy excise is imposed if the total amount of the rent charged is less than $15 per day. G.L. c. 64H, §§ 3, 3A.[2]

The Massachusetts Room Occupancy Excise regulation, 830 CMR 64G.1.1, provides the following general rules for transfers of occupancy involving complimentary rooms:

“Complimentary Rooms.  Where the transfer of occupancy in a bed and breakfast establishment, hotel, lodging house, short-term rental or motel to an occupant is provided on a complimentary or discounted basis, the following rules apply:

                 1.     The state and local excise and any applicable local fees must be collected if there is consideration (in money or otherwise, including services) for the transfer valued at $15.00 or more. 

                 2.     When a bed and breakfast establishment, hotel, lodging house, short-term rental or motel receives a benefit, either direct or indirect, beyond the actual rent paid in money, the state and local excise and any applicable local fees are based on the fair market value of the room received. Examples of direct and indirect benefits include, but are not limited to advertising services; exchange of goods and services; services by employees, and benefits to employees.

                 3.     When a bed and breakfast establishment, hotel, lodging house, short-term rental or motel receives no benefit beyond the actual rent paid in money, the state and local excise and any applicable local fees are computed with respect to the amount actually paid for the occupancy.”

With respect to the application of the room occupancy excise to complimentary or discounted rooms, the room occupancy excise must be collected only if: (1) the complimentary or discounted room is located in a bed and breakfast establishment, hotel, lodging house, short-term rental or motel; (2) there is a transfer of occupancy; and (3) there is consideration (in money or otherwise, including services) for the transfer valued at $15.00 or more.  All three of these elements must be present before a complimentary or discounted room may be taxed. 

B.  Application of 830 CMR 64G.1.1 to Company’s Provision of Room Comps

1. Is the complimentary room located in a hotel?

Company operates a licensed gaming establishment, which includes both a hotel and a casino.  We conclude that Company is the operator of a hotel in which the complimentary rooms are located.

2. Is there a transfer of occupancy?

Occupancy, as that term applies to a room in a hotel, is the use or possession or the right to the use or possession of a room in a hotel designed and normally used for sleeping and living purposes regardless of whether such use and possession is as a lessee, tenant, guest or licensee. G.L. c. 64G, § 1; 830 CMR 64G.1.1(5)(c).  We conclude that when a customer occupies a complimentary room, a transfer of occupancy occurs.

3. Is there consideration for the transfer valued at $15 or more?

You assert that Company’s room comps marketing strategy is totally discretionary with management; Company does not receive any present benefit when it issues a room comp.  Further, when a room comp is issued, it is done so with only an expectation of future patronage which the patron has no obligation, whatsoever, to provide. Based on the information provided, we conclude that where Company issues a room comp to a patron and Company receives no rent for such room, there is no consideration for the transfer valued at $15 or more.

Here, while it may be true that Company bases its decision to offer a patron a room comp by examining factors relating to a patron’s past activities, and may offer a room comp in anticipation that it will act as an inducement to add revenue to Company through increased gaming activity and other spending at Company property by the patron, the offer of a room comp under the facts you provide is not conditioned upon the fulfillment of this expectation, or any other obligation or condition. Rather, a patron receives a room comp under a discretionary Company policy that requires no further obligation on the part of the patron.  Therefore, the room occupancy excise does not apply to Company’s room comps under the marketing strategy described. On the other hand, if Company were to receive any consideration or other benefit, beyond actual rent paid in money, either direct or indirect, under a different arrangement, the room occupancy excise would apply. In that case, the room occupancy excise would be calculated based on the fair market value of the room offered to a patron. Company must keep records sufficient to determine whether the proper amount of tax has been paid in accordance with 830 CMR 64G.1.1(12).

VI. Conclusion

Based on the facts provided, we rule that rooms provided by Company under its rooms comps marketing strategy are not subject to the room occupancy excise imposed by G.L. c. 64G.

                                                                                    Very truly yours,

                                                                                    /s/Geoffrey E. Snyder

                                                                                    Geoffrey E. Snyder
                                                                                    Commissioner of Revenue
GES:RHF

LR 20-2

[1] A local room occupancy excise also applies to transfers of occupancies in these types of accommodations if a city or town has adopted a local excise pursuant to the provisions of G.L. c. 64G, § 3A. 

[2] An “Act Regulating and Insuring Short-Term Rentals” made changes to the room occupancy excise in G.L. c. 64G. The legislation expanded the application of the excise to include accommodations provided by operators of short-term rentals. It also changed the definitions of “rent” and “occupancy” applicable to all types of lodging accommodations.  Effective for transfers of occupancy on or after July 1, 2019, rent is defined in G.L. c. 64G, § 1 as “consideration paid by or on behalf of an occupant, including payment for any service, cleaning or other charge, to an operator or an intermediary for occupancy, valued in money, whether received in money or otherwise, including all receipts, cash, credits and property or services of any kind or nature.  Rent includes, but is not limited to, booking fees and other service charges paid to operators or intermediaries.  Rent does not include: (i) bona fide refundable security deposits; (ii) any amount paid by an occupant that is included in the taxable gross receipts of the operator under chapter 64H or 64I where the operator is a vendor for purposes of those chapters; or (iii) amounts paid by an occupant to an operator for services offered by the operator on similar terms to non-occupants in the regular course of the operator’s business.”  Further, consideration allocated to amenities provided by an operator to all guests, whether or not used and whether or not separately stated by the operator, is rent subject to the applicable state and local room occupancy excise and any local fees. See 830 CMR 64G.1.1(5)(a)2. These changes were effective July, 1 2019.  St. 2018, c. 337; St. 2019, c. 5.