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Hotel Chain Client to Get $6 Million Sales-Tax Refund

In a decision that will have important ramifications for the entire U.S. hotel industry, the New York State Tax Appeals Tribunal affirmed the ruling of an administrative law judge in the New York State Division of Tax Appeals that reimbursements paid to hotels from a hotel reward-point program are not subject to New York sales tax.

This decision results in refunds of approximately $6 million plus interest to the hotel chain’s rewards program and to various hotels in the chain. The program and the hotel chain were represented by a team led by Timothy P. Noonan and Mark S. Klein, both partners in Hodgson Russ’s State & Local Tax Practice Group.

The case, which has implications for the hotel industry across the nation, involves the sales taxation of reimbursements paid to hotels that participate in the chain’s rewards program. Hodgson Russ attorneys worked with several hotel-chain clients over the past four years to make the case to the Tax Department that the reimbursements were not subject to sales tax. An administrative law judge, and now the Tax Appeals Tribunal, agreed. They held that the reimbursement was not consideration for hotel occupancy, but rather was simply designed to reimburse the hotels for participation in the program.

In addition to this particular hotel chain, Hodgson Russ represents a number of other chains that are affected by this litigation and that also will see several millions in refunds as a result of the case. Noonan and Klein negotiated with the Tax Department to bind these other hotels to the result in the case just reviewed by the Tax Appeals Tribunal.