by Morton D. Rosenbaum | December 01, 2005

brynn frost

Brynne Frost

Destination management companies in California are battling with state officials over an effort to impose taxes on DMC revenue.
    The issue was sparked this past February, when California’s State Board of Equalization notified DMCs that, much like caterers or other resellers, they owed a sales tax for markups that occurred between their vendors and clients. The board said all DMCs would be responsible for remitting back payments on the newly revealed tax; those that failed to apply for amnesty and make initial payments by the end of May would be liable for twice the back taxes plus interest.
    In response, the Dayton, Ohio-based Association of Destination Management Executives worked with local and out-of-state DMCs to develop a task force with more than 30 members in an effort to overturn the tax, which they claim demonstrates an ignorance of what DMCs do.
    “We all pay taxes when we buy a product that goes to the client, whether it’s F&B or a golf shirt,” said Brynne Frost, president of San Diego’s Destination Concepts Inc. “Now they want to charge us for our coordination fee, which covers our creative services, our knowledge and our planning of site inspections. In any state, that’s not a taxable fee.”
    “DMCs have a tremendous overhead,” noted Terry Hanks, president of The Meeting Manager, based in San Diego. “At year’s end, if most DMCs can walk away with 2 to 3 percent overall profit, they’re happy; if you take another 7 percent off markups, most of them have no way of surviving.”
    Hanks’ firm alone has been saddled with a new tax debt of $120,000; DMCs that have been working without a seller’s permit have to catch up on 10 years of tax charges.
    The SBOE’s response was firm: “Anyone making sales in California needs to pay tax,” an auditor told M&C.
    Frost pointed to contracting, however, as a field where creative services are untaxed, and said the DMC industry should be treated similarly.
    According to ADME president Pat Schaumann, Minnesota and several other states also have taxed DMCs as resellers, with more likely to follow.