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.