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Tennessee trying to tax hotels for 'free' breakfasts

Associated Press • Mar 7, 2010 at 12:00 AM

NASHVILLE — The so-called complimentary breakfasts at many hotels in Tennessee have stirred the appetite of state revenue officials.

The state wants to tax the lodging businesses for the food that they offer as free breakfasts as part of their room rate.

The budget-strapped state hopes to get an estimated $1 million to $2 million for its coffers from the sweet rolls, coffee and such that hotel patrons enjoy at no charge from the Smoky Mountains to Graceland.

The proposal, pending in committees in the General Assembly, is to collect tax on the food at the prevailing sales tax rate in the county involved — up to 9 3/4 percent.

State officials stress that the businesses would be taxed and not the hungry patrons.

Reagan Farr, commissioner of the Department of Revenue, doesn’t believe hotels would pass the tax onto consumers.

“It would be nominal value that each consumer eats,” he said. “I doubt that they would raise their rates.

“You are literally talking about sales tax on a bagel and a bowl of Cheerios (as an example).”

He said the proposal would bring Tennessee in line with the way other states collect revenue.

“Tennessee is an anomaly among the 50 states,” Farr said.

He said service providers have to purchase their items, “and when they do, they are deemed to be a user and they pay tax on them. This is true regardless of whether the service is ultimately subject to sales tax.

“An example is dry cleaning. They purchase hangers and pay tax on that.”

The proposal is in a much broader tax provisions bill sponsored by state Sen. Jim Kyle of Memphis and State Rep. Mike Turner of Nashville.

According to the latest revenue figures, the state has collected $185.1 million less than the budgeted estimate for this fiscal year. The proposed extra tax would not be available until the next fiscal year.

The Tennessee Hospitality Association, representing hotels, believes the plan is unfair.

“It’s an improper way to collect tax dollars, and bullying as much as anything else,” said Walt Baker, chief executive officer of the association. “Why don’t they just double tax everybody? It’s an unfortunate tactic to tax hotels even further.”

He estimates up to 70 percent of Tennessee hotels offer free breakfast for paying guests.

“It’s the policy of national franchises,” Baker said.

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