ARE ATTRITION FEES TAX-DEDUCTIBLE?

Meetings & Conventions: Planner's Portfolio July 2001 Current Issue
July 2001 PLANNER'S PORTFOLIO:

The Law & the Planner

By Jonathan T. Howe, Esq.

ARE ATTRITION FEES TAX-DEDUCTIBLE?

Readers ask about deductions, sales taxes, alcohol liability and energy surcharges

Q: I just read “Easing the Burden of Taxation” in the April issue of M&C. I have one question: Are attrition fees deductible?
Audrey Featherman, CMP
Events Specialist
National Industries for the Blind
Alexandria, Va.

A: The answer is yes, if the rooms were a tax-deductible item in the first place. In such a case, attrition fees are a business expense and not a penalty or a criminal “fine” (although you might think attrition is both). The burden is to show that the purpose of the meeting was to foster the “trade or business” of the organization (the taxpayer claiming the deduction) that was stuck with the unused rooms, and that the expenses were ordinary and necessary. Assuming a contractual relationship exists, attrition fees would be deductible as a business expense under Section 162 of the Internal Revenue Code.

Q: California hotels now charge us a tax on banquet room rentals. I’d like to find out if hotels can charge sales tax on top of the 19 percent gratuities they charge for F&B served in the banquet room. If F&B were served outside the banquet room, would I still be charged 19 percent plus sales tax?
Deborah Brass
Travel & Meeting Services Director
Trade Secrets Financial Network Inc.
Scottsdale, Ariz.

A: Each state has its own approach to sales taxes and how they are applied to room rentals and the like. The question of gratuity taxation is one that is equally perplexing throughout the United States. In some states, such as Illinois, gratuities are taxable only to the extent that they are not distributed to the servers. So if the gratuity is 19 percent, and 10 percent of it goes to the catering staff, the remaining 9 percent is subject to sales tax.

Because this varies all over the country, ask your F&B representative to show you how it works in his state; if gratuities are taxed when the bill comes, find out the reasons for it. If he claims he doesn’t know, don’t pay it until he finds out. You are entitled to question whether the charge is legitimate. Moving your activity outside of the banquet room would not change how the California taxing authorities would view the situation. If you are paying rent for the space, and the rent is subject to tax, you will have to pay the tax.

Q: If I plan a meeting for 250 people and alcohol is not served but they leave the premises and drink and drive, am I responsible? Can I be sued?
Noreen E. Hibbits
Manager of Exhibits and Special Events
GAF Materials Corp.
Wayne, N.J.

A: If you are not serving alcoholic beverages at your function, you are safe. There is no way someone can accuse you or impose liability for what people do away from your activity. No liquor, no liquor liability. If you do serve liquor, be prepared to face potential liability.

Q: Do I really have to pay energy surcharges that are added after our meeting contract is signed?

A: Our office is receiving many calls on how to handle the energy surcharges being levied by hotels. Such fees, unless specifically provided for in your contract, can be resisted and not paid. The imposition of a surcharge is above and beyond the contract price. When you come to an agreement with the hotel not to pay the fees, tell your attendees they are not obligated to pay the charge at checkout.

Jonathan T. Howe, Esq., is a senior partner in the Chicago and Washington, D.C., law firm of Howe & Hutton, Ltd., which specializes in meetings, travel and hospitality law. Legal questions can be e-mailed to him at [email protected].