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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10104
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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We are a boutique hotel offering an entertainment package

Customer Question

We are a boutique hotel offering an entertainment package with a room rental.
Would the package deal be taxable? It covers a reception, seating at a local concert, and transportation to and from the venue.
Submitted: 11 months ago.
Category: Tax
Expert:  Lane replied 11 months ago.

Hi,

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Yes, the cash value of prizes or awards won in a drawing, TV shows, beauty contest, or other promotion must be included on the tax return as taxable income.

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Taxpayers must also report the fair market value of merchandise or products won as a prize or award, as taxable income.

For example, both a $500 cash prize and the fair market value of a new range won in a baking contest must be reported as other income on Form 1040, Line 21.

Expert:  Lane replied 11 months ago.

IRS will tell you that they tax ALL net increase in wealth ... whether that be a promotional giveaway such as yours. gambling winnings, a bartering gain, sweepstakes winnings, prizes, etc.

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You may remember the Opra fiasco when winners of cars learned from IRS that they would e taxed on the fair market value of their items

Expert:  Lane replied 11 months ago.

here's a good article: http://contests.about.com/od/vacationsweepstakes/f/Which-Taxes-Do-You-Pay-On-Vacation-Prizes.htm

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Here's the IRS guidance: https://www.irs.gov/publications/p525/ar02.html

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Hope this has helped ... Let me know if you have questions

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If this HAS helped, (and you don't have any other questions on this), I'd really appreciate a positive rating (using those stars on your screen) … That's the only way I'll be credited with a portion of what you've paid JustAnswer.com

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Thank you,

Lane

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Customer: replied 11 months ago.
Actually, I don't believe the actual question was addressed. This is not a case of someone "winning a prize". It is an entertainment package we are offering to guests that stay in our hotel. I would like to know if the sale of this package should include sales tax, or should we consider it a non-taxable sundry item.
Customer: replied 11 months ago.
Kindly respond as soon as possible. Thank you.
Expert:  Lane replied 11 months ago.

Hotel taxes in California are locally-imposed taxes that are paid by guests who stay at hotels or similar establishments within the geographical borders of the municipality that is levying the tax.

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In general, if you pay sales or use tax on the purchase or rental of the services that are part of the package OTHER than the room, tax does not apply to the the incremental customer cost (cost over and above the room cost when sold without the package). However, if you do not pay tax to your vendor when you purchase or rent the property or service, the charges in in excess of the normal room are taxable.

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According to California Board of Equalization, "Lodging establishments which furnish additional services such as entertainment and transportation are consumers and not retailers of such products and services when sales tax has been paid to the vendor."

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So, again if sales taxes were not paid to your vendor, then the Hotel IS the retailer and must collect sale tax on the entire cost of the package.

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