June 11, 2009

Is Virginia for Taxes, Instead of Lovers? Hotels Must Collect Yet Another Tax

Holland & Knight Alert

In Virginia, at least, Beware the Kalends of July! The Roman calendar refers to the first days of the month as Kalends. We typically hear about the middle of the month, the Ides, but in Virginia, beware of July 1, which will mark the inception of a new tax that will have to be absorbed either by the hotel or the hotel guest. This time, the tax is on in-room movies, television shows, video games and any other digital or analog media rented by or sold to guests and not included in the room charge. Internet access and telephone service is not subject to the tax.

The tax equals 10 percent of the amount charged to the guest and must be reported on Form DM-1, Digital Media Fee and paid monthly. The fee is in addition to the statewide 5 percent sales and use tax on lodging services. The fee will be administered under retail sales and use tax rules. It was created by S.B. 1421 and added to Chapter 17 of Title 58.1 and article 8, sections 58.1-1731, 58.1-1732 and 58.1-1733.

What would a tax be without exemptions? Federal employees traveling on official business and paying with a government credit card are exempt from both the media fee and the sales and use tax. In a curious turn of logic, state and local employees are not similarly exempt. The Digital Media Fee does not apply when guests stay for 90 consecutive days or more.

One might ask, what is this money going to be used for? If you guessed, “Reducing the budget deficit in Virginia,” you’d be wrong. Net of administrative costs of collection, the revenues are to be shared equally by the Motion Picture Opportunity Fund, whose goal is to increase motion picture production in Virginia, and the state’s general fund. Estimates of annual collections range from $375,000 to $1 million. When the hospitality industry is in tough shape, is this a good balance? Whose jobs are created or saved, Hollywood’s or Virginia’s? Which jobs are temporary and which are permanent? You decide.

The Virginia House of Delegates voted 69-27 in favor of this law.

To the Beatles’ lyrics in Taxman, an additional line might be appropriate, when performed in Virginia:

If you drive a car, I’ll tax the street 
If you try to sit, I’ll tax your seat 
If you get too cold, I’ll tax the heat 
If you take a walk, I’ll tax your feet 
f you watch a movie, play a game or listen to music, 
I’ll tax you ‘till you’re beat

Related Insights