Hospitality Industry

1. Hospitality Industry

2. Taxes That May Apply to Receipts See the Municipal Tax Information Bulletin for municipal tax rates.

3. Municipal Gross Receipts Tax • Municipalities may elect to apply a 1% Municipal Gross Receipts Tax to any one or combination of the following: See the Municipal Tax Information Bulletin for municipal tax rates.

4. Municipal Tax information Bulletin July 2011 See the Municipal Tax Information Bulletin for municipal tax rates.

5. Tourism Tax The above is not a complete listing. See the Tourism Tax Facts for additional information.

6. Franchise The above list is not all inclusive. Additional information is available in the Franchise Tax Facts Royalty fees paid strictly for the right to use the franchisor’s name are not subject to sales or use tax. A franchisor may provide products and services subject to sales tax. Examples: training, accounting, reservation fees, marketing contribu­tions, gift certificates, quality assurance inspections, consulting, advertising, promotions, and software, GDS fees, Frequent Flyer Miles, Internet, virtual tours, guest satisfaction surveys, 800 Express, calls transferred. If the fees for taxable items are itemized, sales or use tax only applies to the taxable charges. When taxable sales are included within the royalty fee, and not separately stated, the entire royalty payment is subject to state sales tax, plus applicable municipal sales tax.

7. Franchise – Exempt Services The following items are exempt from sales or use tax when sold by a franchisor to a franchisee: Advertising that is prepared and placed in the media (TV, Radio) Items that are sold in the regular course of the franchisee’s business Royalty fees if no services or property are included Travel agency fees that are passed directly to the franchisee with no markup.

8. Lodging and Campgroundsif rented for 28 Consecutive days or less Examples: Bed and Breakfasts, Cabins, Condominiums, Hunting Lodges, Guest Ranches, Hostels, Hotels, Motels, Resorts, Tourist Homes, Timeshare Rentals, Vacation Home Rentals, Campgrounds, Cabins, Camping Resorts, Organizational Camps, Park Units, Recreational Vehicle Parks, Trailer Parks, Youth Camps

9. Lodging and Campgrounds See the Hotel, Motel, and Campground Tax Facts for additional information. Transient Guest: • Any person that resides in a lodging establishment or campground less than 28 consecutive days. Rental of lodging or campgrounds to a person for 28 or more consecutive days is exempt from sales tax. Casual or occasional: • The rental of lodging or campsites for 10 or less days in a calendar year is not subject to sales tax. Any lodging or campsite that has a sales tax license is not a casual or occasional business.

10. Lodging - What Tax applies? Municipal taxes apply when the sale is in a city that imposes the tax.

11. Tax on Charges for In room Equipment Municipal taxes apply when the sale is in a city that imposes the tax.

12. Miscellaneous services Municipal taxes apply when the sale is in a city that imposes the tax.

13. Transportation and Tours Municipal taxes apply when the sale is in a city that imposes the tax.  1 Tours subject to municipal sales tax, are subject to municipal gross receipts tax IF the tour charge includes tickets or admissions to places of amusement, lodging, or restaurant meals.

14. Sale of Food and Drinks Municipal taxes apply when the sale is in a city that imposes the tax. Food and drink provided to the guest at no charge is subject to state and municipal use tax. Municipal gross receipts does not apply to food or drinks given away. Chart is available in the Hotels, Motels and Campgrounds Tax Facts.

15. Other taxes or fees Resort Fee – A resort or facility may charge an additional fee use of their facility such as waterslides, golf courses, tennis courts, swimming pools etc. Resort fees are included in the receipts subject to the state and municipal sales tax, municipal gross receipts tax, and tourism tax. Municipal Occupational Tax on Lodging - may be imposed by a business improvement district per SDCL 9-55-7. This may be called a lodging fee, BID tax, pillow tax, or occupancy tax. It is not included in the receipts subject to sales tax. Sioux Falls Lodging Tax – is in addition to the state and municipal sales tax, municipal gross receipts tax, and tourism taxes. It is not included in the receipts subject to sales tax.

16. Gift Shops – Tourism tax If a gift shop is distinct from the business in which it is located and 50% or more of the gift shop’s total receipts are during June through September, the gift shop will owe tourism tax on their receipts during June through September. A gift shop is distinct from the business in which it is located if: The gift shop is physically separate from the other business, such as a motel. This may include a separate cash register or walls separating the gift shop from the remainder of the business. In some hotels the gift shop is down the hall from the front desk and appears to the customer to be as separate as the hotel’s restaurant; or The gift shop is operated by a person other than the owner of the business in which it is located. Items sold at the registration desk are not subject to tourism tax. Tourism tax is in addition to state, municipal and municipal gross receipts taxes.

17. Rewards Programs Lodging establishments may participate in reward programs. These programs provide a variety of rewards to the customer after a certain number of stays or points are accumulated. Rewards may be a free night, retailer gift certificates, airline tickets or other merchandise. The lodging establishment pays a fee which is put into a fund to reimburse the hotel or airline for rewards used for free lodging or tickets. What is subject to sales or use tax? Amounts the lodging establishment contributes to the rewards program are subject to state and applicable municipal sales or use tax, based on the motel location. Amounts the lodging establishment receives from the rewards program for free nights guests have redeemed are subject to state, municipal, municipal gross receipts, and tourism tax.

18. Reservation Systems Fees to use a reservation system, such as the reservation systems provided by a franchisor for their franchisees, are subject to sales or use tax. Charges by global distribution systems are subject to sales or use tax. This type of service provides a single point of access for reserving airline seats, hotel rooms, rental cars, etc. These systems are used by travel agencies and reservation services to provide their customers with up to date information on availability and rates. The actual reservations are made through the travel agent or reservation service. These fees may be charged to the franchisor and passed on to the franchisee. Any charges passed on to the franchisee are subject to sales or use tax.

19. Reservation Agencies Fees received by companies providing reservation services to various lodging and campground establishments that are based on the sale of a room or camping site are not subject to sales tax. When a business is paid a fee to take reservations, but the fee is not based on the sale of a room or camping site, the fee is subject to sales tax. (For instance, a motel pays a flat fee per year to the reservation agency) A lodging establishment owes tax on the total charge to the customer for the room without deduction for amounts paid to or retained by the reservation service. • Rooms at a South Dakota motel are booked through J’s reservation service. J’s collects the room charge of $100 plus tax of $8.50.  J’s sends $98.50 to the motel and retains $10 for their service. • The motel owes tax on the total charge of $100. • J’s reservation service does not owe sales tax on the $10 they retain. • Another motel uses a reservation service; however, the customer pays the motel directly. The motel collects $100 plus tax of $8.50. The motel sends a commission to the reservation service of $10.  • The motel owes tax on the room charge of $100.  • The reservation service does not owe sales tax on the $10 commission paid by the motel.

20. Purchases for Resale Items purchased to sell to customers can be purchased for resale. Items which are sold to customers may included: Mini-bar food or drinks Gift shop items Products sold through vending machines Items that are provided to customers for their use are subject to tax. Ash trays Ice buckets Towels Soap Shampoo Robes

21. Hunting Lodges • A hunting lodge is selling a service, not tangible personal property, therefore there are items that cannot be purchase for resale. • The following are examples of items that are taxable when purchased if provided or included in the charge for the lodging or hunting package: • Food and Drinks • Souvenirs • Ammunition Example: A pheasant lodge, located outside city limits, is providing a hunting package of 3 days of guided hunting, lodging, meals, drinks and snacks. One fee covers the entire package. No items are sold separately from the package. • The lodge owes sales or use tax when purchasing the food, drink, etc. • The lodge also owes state tax and tourism tax on the entire package. More information is available in our Hunting & Fishing Service Tax Fact

22. Use Tax When sales tax is not properly charged, use tax applies. Retailer pays Sales Tax - Purchaser pays Use Tax. • Use tax is the same rate as the state and municipal sales tax. • Applies to the purchase price-including freight or delivery charges. Example: You purchase blankets online for $500 + $50 shipping. Use tax is due on $550. • If a product or service is exempt from sales tax, it is also exempt from use tax. The majority of audit assessments are for use tax. Review all purchase invoices for items that are subject to sales or use tax. Pay use tax on items taken from inventory to use or give away.

23. What is use tax due on? Examples of products and services subject to use tax: Supplies, materials, equipment or services used by the facility are subject to sales tax when purchased. If the supplier does not charge sales tax, use tax is due at the same tax rate as sales tax. The state use tax rate is 4%, plus applicable municipal use tax, and is payable to the Department of Revenue in the filing period in which the lodging establishment or campground receives the supplies or services. • accounting services • beds, bedding • coffee pots, cups • coffee, tea, mints, water • cleaning supplies and equipment • computer or internet services • consulting services • drapes • electronic lock systems • furniture • ice bucket • ice machine • Key cards and holders • laundry bags • laundry supplies and equipment • office supplies • pens, stationery, note pads • pool supplies • soaps, shampoos • shower caps • toilet paper • towels • TVs

24. Complimentary Food and Drinks All complimentary food or drink is subject to state and municipal sales or use tax. Disposable containers provided for use with complimentary food or drinks are subject to state and municipal sales or use tax. Examples: paper plates, cups, glasses, bowls.

25. Events – Meetings What tax applies to the receipts? Rental of Room – subject to state and municipal sales tax Equipment rental – optional – subject to state and municipal sales tax. Food – optional – subject to state and municipal sales tax and municipal gross receipts tax. Can the facility purchase products or services for resale? Items the facility provides to customers are subject to sales or use tax at the time of purchase. Items purchased to rent or sale to a specific customer may be purchased for resale. These charges are itemized on customers invoice.If any item purchased to rent or sale to a customer is used by the facility, use tax is due on the cost of that item.  Items that have had sales or use tax paid on them, that are later rented will be subject to sales tax on the rental charge also. Examples of Equipment: Projectors, Microphones, Computers, TVs, Tables, Chairs, Linens

26. Example A facility has meeting rooms. Each room is provided with tables, chairs, table linens and free wireless Internet. Coffee is provided with the room. Available for an additional charge are: PA system, Microphone jacks, VCR, DVD, front and rear screen projectors, spotlights, printing, and catering. The facility has an inventory of equipment available for lease to customers – this equipment is not used by the facility. The motel owes state and municipal sales tax on the charges for the room and the optional equipment or services sold. The motel owes state and municipal sales or use tax on their purchase of the tables, chairs, table linens, and internet service. Use tax is also due on the cost of the coffee, the coffee pots, cups, sugars, and creams provided with the free coffee service.

27. Is the customer exempt from sales tax? The sale of products and services to the following entities is exempt from South Dakota sales and use tax. Indian Tribes United States government agencies State of South Dakota Public or municipal corporations of the State of South Da­kota Municipal or volunteer fire or ambulance departments Public schools, including K-12, universities, and technical institutes supported by the State of South Dakota or public or municipal corporations of South Dakota. Non-profit hospitals Religious or private schools approved by the Department Relief agencies approved by the Department (List is on Department’s website) Foreign Diplomats that have a tax exempt card that indicates they are exempt from tax on their purchase. Documentation must show payment was made directly by the exempt entity. More information is available in the Exempt Entities Tax fact

28. Is the customer exempt from sales tax? Purchases made by individuals working for an exempt entity that pay with their own funds or credit card are not exempt from sales tax, even if they will be reimbursed by their employer. Example: state employees on state business paying with their own funds

29. Other States’ Governments Purchases of lodging made directly by the govern­ments from the following states are exempt from South Dakota sales tax: • Alaska • Colorado • Delaware • Indiana • Montana • New Hampshire • North Dakota • Ohio • Oregon • West Virginia Governments from other states or the District of Columbia, including public schools and state universities, are exempt from sales tax if the law in that state provides a similar exemption for South Dakota governments.

30. Documentation from Government The seller may document an exempt government sale by: Obtaining an exemption certificate; or Keeping documentation to show the purchase was paid from government funds. Documentation may include a purchase order or a check stub. Government entities do not need to provide an exemption number on the exemption certificate. Exemption certificates are only valid for purchases made by and paid directly by the exempt entity the exemption certificate is for. When a purchase is made with a government credit card, an imprint or copy of the credit card must be kept as documentation.

31. Federal Government Travel Cards Federal Government Travel Cards have a blue border and feature a U.S. flag and a large jet. The card is imprinted with: “For Official Government Travel Only.” These cards can be used for meals, lodging, rental cars, and similar travel-related venues. Travel cards start with 4486, 4614, 5568, or 5565. Purchases made with Travel cards that have a sixth digit of 1,2,3, or 4 are subject to sales tax. Purchases made with Travel cards that have a sixth digit of 0, 6, 7, 8, or 9 are exempt from sales tax. The government credit card number must be kept as documentation if the purchase is exempt. Purchases made with Federal Government GSA SmartPay® 2 Fleet Cards, Purchase Cards, and Department of Interior Cards are exempt from sales tax.

32. Diplomatic Exemption Card Exemptions are listed on front of card. The validity of a Diplomatic Tax Exemption Card can be verified on-line at https://ofmapps.state.gov/tecv/ or by contacting OFM by telephone at (202) 895-3500, x2. Please visit www.state.gov/ofm/tax/ for additional information. Deer: Cards are intended to be used solely in connection with personalpurchases. Cardholder has limited exemptions from sales, occupancy, restaurant/meal, and other similarly imposed taxes. (Example, cards may read “EXEMPT FROM TAXES IMPOSED ON PURCHASES OF HOTEL STAYS, RESTAURANT MEALS, AND RENTAL CARS.”) Eagle: Cards are intended to be used solely in connection with personalpurchases. Cardholder is exempt from sales, occupancy, restaurant/meal, and other similarly imposed taxes without restriction. Buffalo: Cards are intended to be used solely in connection with officialpurchases. Cardholder/mission limited exemptions from sales, occupancy, restaurant/meal, and other similarly imposed taxes. (Example, such cards may read “EXEMPT FROM TAXES IMPOSED ON PURCHASES OVER $300; NOT VALID AT HOTELS.”) Owl: Cards are intended to be used solely in connection with officialpurchases. Cardholder/mission is exempt from sales, occupancy, restaurant/meal, and other similarly imposed taxes without restriction.

34. Restaurants and bars Restaurants, bars, casinos, hotels, boarding houses, drugstores, drive-in restaurants, lunch counters, snack bars, cafeterias, caterers, sandwich shops, cafes, and any similar place of business that sells prepared food and beverages. More information is available in the Bar/Restaurant Tax Fact

35. What is subject to Sales tax?

36. Containers Containers provided free of charge to the customer that are used to hold a food or beverage sold can be purchased for resale and are not subject to state and municipal sales or use tax. Examples may include: • Condiment containers • Disposable cups, glasses, hot cup sleeves, lids • Disposable food trays • Doggie bags • Paper or plastic bags • Pizza boxes and liners • Styrofoam containers Does it hold the product sold? Is it provided free to the customer?

37. Containers Containers the retailer reuses are subject to state and municipal sales or use tax when purchased. Examples may include: • Pitcher • Plates, glasses, cups • Plastic trays or baskets • Serving trays

38. Items that are Not Containers Items that are not containers are subject to state and municipal sales or use tax when purchased. Examples may include: • Disposable eating utensils • Disposable plates provided with pizza in a box • Disposable towelettes • Napkins • Placemats • Stir Sticks • Straws • Sword picks • Table clothes or covers • Tripods used in pizza boxes to hold lid up • Utensils

39. Discounts - Promotions Coupons: Retailer receives NO reimbursement – Not taxable Retailer receives reimbursement from a third party – Taxable Complimentary meals – State use tax and municipal use tax Complimentary beverages – State use tax and municipal use tax Meal Replacements: if an error is made in preparing food or drink and an the item is replaced, but still charged for, the amount charged is subject to tax, no use tax is due on the returned item. Buy one get one free – this is a condition of sale – you must buy one to get one. • State sales tax, municipal tax, municipal gross receipts tax applies to the charge. No additional tax is due on the one given free with the required purchase.

40. Catering Subject to state sales tax, municipal tax, municipal gross receipts tax based on the location of the catered event. Caterer can purchase the following items for resale: Food Disposable containers: plates, glasses, cups, bowls Taxable purchases: Napkins, utensils, reusable plates, glasses, cups, bowls, serving platters, all tools and equipment used to provide service.

41. Entertainment Entertainment services - subject to state and municipal sales or use tax. Cover charges to enter a bar when they have entertainment - subject to state sales tax, municipal sales tax, municipal gross receipts tax. (no tourism tax) If a bar has a cover charge, the entertainer’s service may be purchased for resale. Because many entertainers (bands) are not licensed, it is the retailers’ responsibility to remit state and municipal use tax on the amounts paidthe entertainer if they are not charged sales tax.

42. Resale Purchases Municipal gross receipts tax does not apply to food or drinks provided free to the customer. Items to be sold to customers may be purchased by the restaurant or bar for resale. Examples: Food – includes condiments such as ketchup, mustard, salt, pepper, olive oil Beverages Clothing items – T-shirts, jackets, caps Food provided to customers at no charge is subject to state and municipal sales or use tax when purchased or when removed from a tax unpaid inventory. Examples: Popcorn Hors D’oeuvres Free Drinks

43. Use Taxable items Examples of products and services subject to use tax: • Air Filter Systems • Amusement Machines • Appliances – ovens, microwaves, coolers, glass washers, sinks • Banners • Bookkeeping Fees • Cash registers • Cleaning Equipment and Supplies • Cleaning Service • Coin Counters • Computer Systems and Software • Coolers • Entertainment: Bands, Magicians • Furniture: Tables, Chairs, Barstools • Gaming Supplies: Cards, Dice and Cups, Poker Chips • Internet Access • Keg Taps • Kitchen Items: pots, pans, cooking utensils • Magazine or Newspaper Subscriptions • Menus • Office Supplies • Signs • Uniforms List is not all inclusive.

44. Vending Machines 1Prepared food includes food served in containers such as glasses, cups, bowls. Examples: hot soup, coffee, hot chocolate 2Other Items includes prepackaged food (pop, candy bars, chips), other items such as razors, combs, toothbrush, shampoo.

45. Amusement Machines 1 A $12 decal is purchased annually in lieu of the municipal sales tax. Decal is purchased from the Department of Revenue’s Special Tax Division.

46. Video Lottery Amusement machine decal is not required for video lottery machines.

47. Coin operated washer and dryers Washer and Dryer permits must be obtained from the Department’s Special Tax Division.

48. Gross Receipts Example of invoice: Hamburger $ 10.00 Sales tax 7%$ .70 Total $ 10.70 • Gross receipts are $10.00. • Total State, municipal sales, and municipal gross receipts tax due is $ .70 Bars are allowed to back tax out of their gross receipts. Example of invoice: Drink $10.00 Determine taxable receipts by dividing $10.00 by 1.07 (state, municipal sales and municipal gross receipts tax total rate is 7%) $10.00 ÷ 1.07 = $9.35 Gross receipts are $9.35. Total State, municipal sales, and municipal gross receipts tax due is $ .65. Tax may also be backed out of Amusement and Vending machine receipts. Gross receipts include the total amount received for a product or service excluding sales tax that is itemized on the invoice.

49. Employee MEALS Meals furnished at no cost to an employee are subject to state and municipal use tax on the restaurant’s cost of items provided. Meals sold to employees are subject to state, municipal, and municipal gross receipts tax on the amount the meal is sold for.

50. Gift Certificates The sale of a gift certificate is not subject to sales tax. Sales tax applies when the gift certificate is redeemed for taxable products or services.