Tax Guide For Destination Management Companies

Helping your business succeed is a key goal of the Board of Equalization. Taxes you collect and pay to the state help fund state and local services and programs that are important to you and your community. We recognize that understanding tax issues related to your industry can be time-consuming and complicated, and want to help you get the information you need so that you can focus on starting and growing your business.

To help you better understand tax obligations for the Destination Management Company (DMC) industry, we have created this guide with topics important to your business.

How to Use This Guide

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Each section of this guide contains information important to your business. The Getting Started section provides basic information regarding DMCs as well as key resources related to registration, filing returns, account maintenance, and other important information if needed.

The Industry Topics section covers many topics that affect your industry, each in an at-a-glance format that can be expanded to provide more extensive information if you need it.

Lastly, the Resources section provides links to web-based seminars, forms and publications, statutory and regulatory information, and access to live help from our customer service representatives.

Please note that the information included is general in nature and is not intended to replace any law or regulation.


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If You Need Help

If at any time you need assistance with topics included in this guide — or with others we may have not included — feel free to contact us by telephone or email for assistance. Contact information and hours of operation are available in the Resources section.

If you have suggestions for improving this guide, please contact us by email.

Getting Started

What is a DMC?

A DMC is a type of a travel service company that provides knowledge, expertise, and resources for designing, organizing, and implementing events and activities for clients. Examples of these events and activities include:

  • Transportation
  • Entertainment
  • Meals
  • Meetings
  • Team building retreats
  • Theme parties
  • Outdoor activities
  • Tours and sightseeing
  • Program logistics
 

How Tax Generally Applies to DMCs

In California, all sales of tangible personal property are subject to tax unless the law provides a specific exemption. The law defines tangible personal property, as an item that can be seen, weighed, measured, felt, or touched. Taxable sales made by DMCs usually consist of meals, beverages, gift baskets, etc. Service charges for providing these items are also generally taxable.

Although DMCs provide knowledge, expertise, and resources for designing, organizing, and implementing events and activities for clients, certain charges for services may be subject to tax. Service charges for transportation and coordinating tours and sightseeing are generally not taxable. Service charges for providing meals as well as the sale of the meals themselves are generally taxable. Other charges may include a combination of taxable and nontaxable services.

If you make taxable sales as part of your DMC services, you must register with us for a seller's permit and file sales and use tax returns.

Registration

Online Registration — Register with us for your seller's permit, or add a business location to an existing account.

Filing and Payments

Industry Topics

Typically, DMCs bill clients for all services and merchandise provided, which include a mark-up or service fee for planning and coordinating events. Generally, fees, percentages, or mark-ups charged by DMCs for planning and coordinating events and making arrangements for special venues are subject to tax when they are provided in connection with the sale of taxable items such as food, beverages, and gifts. When a caterer, restaurant, or other retailer bills the DMC directly for the meal or other merchandise, and the DMC in turn bills its client, the DMC is the retailer of the meal or other merchandise provided to its clients. The DMC may issue a resale certificate to the caterer, restaurant, or other retailer from which it purchases meals or merchandise. The following sections discuss certain types of charges and how a DMC can determine what service charges are generally taxable.

Transportation Charges

Generally, charges to transport persons are not taxable. This includes transportation of clients and baggage to and from airports. Transportation charges should be separately stated on the sales invoice.

Meals

Charges for providing meals, food, or beverages generally are subject to tax.

A DMC may contract with a caterer or other such person to prepare and serve meals or may make reservations with various restaurants to provide meals and beverages. As such, when the DMC is the retailer of the food and beverages provided, the charges for the management and coordination of these events are generally subject to tax. Other taxable charges for services provided may include setting and cleaning up, supervising, and hosting which are charged in connection with the sale of the food and beverages.

Mandatory Gratuity and Service Charges

Mandatory gratuity charges are subject to tax when associated with the taxable sale of food and beverages.

Amounts added by the seller as gratuity or service charge to an invoice are considered mandatory charges. Examples of taxable gratuity or service charges include charges paid for event set-up staff, professional planners, hosts, supervisors, decorators, bartenders, maître d’s, wait staff, food preparers, and others when these positions are staffed in association with the taxable sale of food and beverages.

Separately stated service charges added by the seller to an invoice for tour guides, chaperones, coat check clerks, parking attendants, activity planners, drivers, and security guards are nontaxable if the services are not provided in connection with the taxable sale of food and beverages.

For more information, please see publication 115, Tips, Gratuities, and Service Charges.

Optional Gratuity (Tips) Payments from Clients

Generally optional gratuities your clients pay are not taxable

A gratuity payment is considered optional if your client adds the amount to the bill, or leaves a separate amount in addition to the actual amount due for services rendered such as serving food and beverages, chauffeuring, and baggage handling. Gratuities are also considered optional when they are not part of the contract, the client does not have the obligation to pay, and the amount paid is determined by the client's discretion.

For more information, please see publication 115, Tips, Gratuities, and Service Charges.

Event Design and Coordination

Charges for event design and coordination are considered services and are taxable when the charges are related to the sale of merchandise or the sale of food and beverages.

For example, if the services include the provision of dining tables, food buffets, or beverage bars, the charges are subject to tax if event coordination services are related to the sales of meals and beverages. On the other hand, if the event coordination services include providing property such as décor or an assembled stage* (not affixed to real property) where a speaker will make a presentation or where other nontaxable optional entertainment takes place, tax would generally not apply to the related charges as long as the services are not related to the sales of meals, beverages, or other merchandise.

*Regardless of whether or not the stage rental is related to the sale of food and beverages, or whether entertainment is optional, the rental charge may be subject to tax if it's for a lease of property where tax has not been paid on the original purchase price (continuing sale and purchase).

For more information on rental charges for dance floors, podiums, and stage equipment, etc., please see Regulation 1660, Leases of Tangible Personal Property-In General, publication 46, Leasing Tangible Personal Property, and publication 22, Dining and Beverage Industry.

Coordination of Premises

A separately stated charge for the rental of premises such as, but not limited to, non-commercial private estates, stages permanently affixed to real property, museum courtyards, and library event rooms are considered leases of real property rather than leases of personal property. Generally, rental payments and any coordination or service charges associated with the rental of real property are not taxable as long as it is not related to the sales of food and beverages, or other merchandise.

Generally, when the real property rented is primarily used for serving meals and beverages (such as restaurants, banquet rooms, and similar establishments), and the rental includes the sale of food or beverages, then the rental charge is subject to tax as well as any associated service charges.

If the real property rented is typically for purposes other than serving of meals (such as the rental of a non-commercial private estate for a business conference) and the purchase of meals is optional, and a separate charge for meals is made, the rental charges and associated coordination or service charge(s) for the real property are not taxable. However, if a charge for leased premises includes a guarantee for a minimum purchase of meals, food or drinks, the guaranteed food or beverages, and the service charge for coordinating the leased premises are subject to tax.

See Regulation 1603, Taxable Sales of Food Products and publication 22, Dining and Beverage Industry for more information.

Coordination of Activities and Sightseeing Tours

Separately stated charges for activities that are unrelated to a taxable sale are generally not subject to tax.

Charges for coordinating a round of golf, a kayaking trip, or similar activities are generally not taxable as long as the charge is not associated with the taxable sale of merchandise.

For instance, charges for coordinating a bus tour to visit Napa Valley wineries would not be taxable if all that is provided is transportation to the various wineries. However, if the tour included items such as a hot prepared meal or wine gift basket, the portion of the charge for the tour related to the sale of these items would be taxable. See Example 1 under Charge for Services.

Charges for Services

Charges for services may or may not be taxable depending on whether the charge is related to the taxable sale of merchandise or food and beverage.

Some DMCs segregate charges for services from the charges for sales of food, beverages, and other merchandise. Other DMCs charge their clients a lump-sum service charge for all services in connection with both nontaxable services and taxable sales. Regardless of the method used, tax is calculated based on the portion of the charge related to the taxable sale of the merchandise.

If a DMC does not segregate fees to show which service charges were for services, such as coordinating transportation, tours, or sightseeing; and which are related to taxable sales, such as coordinating meals and catering, the DMC should calculate a reasonable segregation between taxable and nontaxable services based on available business records.

Example 1: XYZ Company books a group for 20 guests for a five-hour sightseeing bus tour of the California coastline with a DMC. During the bus tour, guests are given bag lunches which include turkey sandwiches, potato chips, and bottled water. At the end of the tour, each guest is given a wine gift basket. The charges to XYZ Company are as follows:

Items
Cost
Bag Lunch
$240.00
Gift Basket (wine, glasses, basket, and cellophane,)
1,000.00
T
Coordination Fee (for bag lunch and gift basket)
300
(300.00 X 80.65% = 241.95 T)
Transportation
1,164.00
Subtotal
$2,704.00
Tax ($1,000 + 241.95) X 7.50%*
93.15
Total
$2,797.15
T = Taxable

*The statewide tax rate during July 2015 was used in this example. Businesses should always use the most current tax rate for their location, which can be found on our Find a Sales and Use Tax Rate page.

Summary of Taxable and Nontaxable Items

  • The coordination fee charged for services in connection with the sales of the bag lunches is not subject to tax because they are sales of cold food items to go.
  • The coordination fee for services in connection with the sales of the gift baskets is subject to tax because the sales of the gift baskets are subject to tax.

Tax on the coordination fee in connection with the sale of merchandise is calculated based on the portion of the charge related to the sale of the taxable merchandise as follows:

Add: 240 + 1,000
Bag Lunch $240.00
Gift Basket (wine, glasses, basket, and cellophane,) 1,000.00
Total $1,240.00
Divide: 1,000 / 1,240
Taxable Merchandise: Gift Basket (wine, glasses, basket, and cellophane) $1000.00
Total Merchandise 1,240.00
Total Percentage Apportioned to Taxable Merchandise 0.806452
Rounded Percentage 80.65%
Multiply: 300 X .8065
Coordination Fee $300.00
Percentage 0.8065
Total Taxable Coordination Fee $241.95

Example 2: ABC Company from Arizona books a group event for 20 guests with a DMC in Malibu, California. The program includes picking up the group and driving them to a local restaurant in Malibu. The dinners and drinks are pre-arranged prior to the arrival of the guests. In addition, the group event will have an on-site photographer taking group pictures and providing prints at the end of the meal. The charges to ABC Company are as follows:

Items
Cost
Food & Beverages
$1,683.60
T
On-site Supervisor Gratuity
260.00
T
Coordination & Planning Fee
500.00
T
Photographer Fee
200.00
T
Transportation
450.00
Coordination Fee For Transportation
160.00
Subtotal
$3,253.60
Tax ($2,643.60 X 9.00%*)
237.92
Total
$3,491.52
T = Taxable

Because the on-site supervisor gratuity, the coordination fee for scheduling dinners and drinks, and the photographer fee for group photos taken at the restaurant are charges for services in connection with the taxable sale of the food and beverages, and merchandise, these service charges are subject to tax. Separately stated charges for transportation to and from the venue, as well as the coordination fee for transportation are not subject to tax because the transportation is independent of the sales of food and beverages.

*The Malibu, CA tax rate during July 2015 was used in this example.

Purchases for Resale

As a retailer of meals and other items, you are considered to be purchasing meals, beverages, and other items from restaurants, caterers, or other vendors for resale.

You may purchase these items without paying tax to your vendors by timely issuing them a valid California Resale Certificate. In turn, you will be responsible for tax on the selling price that you charge for the meals, beverages, and other items, including the charges for planning and coordinating services provided in connection with the taxable sales.

For more information, see BOE publication 103, Sales for Resale.

Although tax may apply to your charges for the restaurant meals, catered events, and other related items, we are aware that DMCs generally pay tax reimbursement to their vendors when making these purchases. When you pay tax reimbursement to restaurants, caterers, and other vendors for the purchase of meals, beverages, and other purchases which you resell to your clients, you are generally entitled to take a deduction on your tax return for the amount of the purchase that you paid tax on that you resold. This deduction is listed on the Sales and Use Tax Return as "Cost of Tax-Paid Purchases Resold Prior to Use."

Cancellation Fees

Cancellation fees may or may not be taxable depending on whether the meal or other merchandise was actually furnished.

For example, when an entire group restaurant reservation is cancelled, the cancellation fees are not taxable since their meal was not actually furnished. However, if there is a no show or cancellation fee for one or more members of the group and the group reservation is not cancelled in its entirety, and the fee is passed on to the client, the no show or cancellation fee is taxable since it is associated with the restaurant's charge for the meals.

When cancellation fees are not related to the taxable sale of a meal or other merchandise, such as a cancellation fee related to a golf event or a trip to the zoo with no meal or other merchandise provided, the cancellation fee is not taxable.

Resources

Need to know more? Follow the links below for more information about the topics covered in this guide, as well as other information you might find helpful:

Top Resources

Other Helpful Resources

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  • Verify a Permit or License — You can use this application to verify a seller's permit, Cigarette and Tobacco product retailer license, eWaste account, or Underground Storage Tank Maintenance Fee Account.
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  • Get It In Writing! — The Sales and Use Tax Law can be complex, and you are encouraged to put your tax questions in writing.
  • Taxpayers' Rights Advocate (TRA) — The TRA Office helps taxpayers when they are unable to resolve a matter through normal channels, when they want information regarding procedures relating to a particular set of circumstances, or when there are apparent rights violations.