In-Room Movie and Video Game Rentals by Hotel Guests

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This interpretation letter was issued based on the specific circumstances or situation of a taxpayer or vendor and the law and tax policy in effect at the time the ruling was issued. Specific facts relevant to your situation may change the application of the tax. In accordance with the Freedom of Information and Protection of Privacy Act, all confidential and identifying information has been removed from this interpretation letter. Please be aware that any statute or policy referred to in this letter may have been superseded. Where a letter contains links to a publication, the link is to our current publication on that subject, regardless of the date that the ruling was originally issued, and the current publication may not be reflective of the information originally provided. In no event shall the Government of Ontario be liable for any damages whatsoever arising out of, or in connection with, the use of the information contained herein.

Interpretation Letter TC-0001, March 2003

Thank you for your letter dated June 13, 2002, (received in our office on June 21, 2002) inquiring about the application of Ontario retail sales tax (RST) on movies, video games and internet access purchased by hotel guests.

This interpretation is based on the information provided and which is conveyed in the "Understanding of Facts" portion of this ruling. Please review the information for its completeness and accuracy. If it is determined that the information is incomplete or inaccurate, this interpretation will not be binding. In the event that our understanding of the facts is incomplete or inaccurate, please notify the undersigned, in writing, so that we may reconsider our opinion.

Understanding of Facts

It is our understanding that, under a "Guest Pay Agreement" between Company A and certain hotels, Company A provides in-room movies, video games and internet access to hotel guests in Ontario. In order to provide these services, hotels provide space in their facilities for video equipment and accessories set up by Company A. Company A pays RST on equipment and other tangible personal property used to provide these services.

Billing for the in-room movies, video games and internet access is done automatically by special Company A software which interfaces with the hotel's internal automatic billing system, ensuring that Company A charges will be added to the guests bill at the time of check-out. The hotels, in return for a commission, charge the guests for the movies and other services purchased and remit the fees to Company A.

It is Company A's position that it is not selling its services to the hotels, but to hotel guests, and that the hotels are just acting as a middle persons, basically as facilitators and collectors. Also based on its understanding of the wording "are not required to charge RST" contained in RST Guide 301 - Accommodation, Company A believes that the hotels can charge guests RST on the purchase of in-room pay per view movies, video games and internet access. Company A would like a written interpretation on whether hotels, acting as Company A's collector of fees, can collect the RST from the hotel guests.

Legislation and/or Administrative Policy

The Ontario Retail Sales Tax Act (Act) imposes RST at the rate of 8% on the purchaser of a taxable service. Section 1 of the Act defines taxable service to mean, in part, "taxable service" means,

(a) telecommunication services of all kinds, including without restricting the generality of the foregoing, telephone and telegraph services, community antenna television and cable television, transmissions by microwave relay stations or by satellite, and pay television, but not including public broadcasting services that are broadcast through the air for direct
reception by the public without charge,

The Act further defines telecommunication as,

"telecommunication means any transmission, emission or reception of signs, signals, writing, images or sound or intelligence of any nature by wire, radio, visual or other electromagnetic or laser-based system, but does not include any transmission, emission or reception or class thereof that is prescribed by the Minister to be excluded for the purpose of this paragraph;"

The Act defines fair value to be, in part,

"the price for which the tangible personal property or the taxable service was purchased, including the value in terms of Canadian money of services rendered and things exchanged and other considerations accepted by the vendor or person from whom the tangible personal property passed or taxable services were rendered as the price or on account of the price of the tangible personal property purchased or taxable service received."

The Act anticipates agency relationships in the collection of the tax. Subsection 13(3) of the Act states that:

Any person who collects any amount as or on account of tax shall be deemed to be a vendor for the purposes of subsection (1) and for the purposes of assessment, collection and enforcement of this Act.

Subsection 13(1) provides that:

All taxes and all amounts collected as or on account of tax by a vendor under this Act shall...be remitted to the Minster at the time or times and in the manner prescribed by the regulations.

Analysis and Conclusion

Upon review of the "Guest Payment Agreement" it is clear that the in-room pay per view movies, video games and internet access are provided by Company A to hotel guests. As such, RST is payable by the hotel guests on the taxable telecommunications services (i.e. movies and video games) provided.

The hotel, as agent for Company A, will bill the guests for the taxable telecommunications services provided, and collect the applicable RST thereon. The hotel is required to remit the RST it collects from guests on the taxable telecommunication services provided by Company A, directly to the Minister. The hotel will not be required to collect RST from Company A on the hotel's commission, as no taxable service is provided.

The following internet-related services are considered to be non-taxable services, and the hotel as agent for Company A is not to charge RST on its billings to the hotel guests for these services: