On June 7, 2024, the Arizona Supreme Court held that reimbursements received by a hotel when participating in a hotel rewards program were subject to the Transaction Privilege Tax (TPT). The reimbursements were paid to the taxpayer when it provided a guest with a complementary hotel stay under the program. The rewards program required the taxpayer to pay a percentage of room revenues to fund the program. Guests accrued points by staying at participating hotels, spending money with affiliates, purchasing points, or receiving points as a gift. Because the rewards points came from transactions upon tax had already been paid, the taxpayer argued that the reimbursements were akin to “post-tax” reserves or returns of capital and filed a refund claim for TPT paid between 2012 and 2016.
In finding the reimbursements were taxable gross income under the TPT, the Court relied primarily on the fact that the reimbursements were consideration for the sale of lodging. The Court also found that the taxpayer did not have control over the points credited to guest accounts and that there was no way to determine whether the reimbursements were sourced from the funds contributed by taxpayer. As such, the Court held that the reimbursements were not akin to “post-tax” reserves or returns of capital, and that the reimbursements were subject to the TPT.
Dove Mountain Hotelco, LLC v. Dep’t of Revenue, Ariz., No. CV-23-0176-PR (June 7, 2024).