On September 22, 2017, the Department assessed the Taxpayer in the amount of $276,963.88 for gross receipts tax, withholding tax, penalty, and interest. On December 15, 2017, the Taxpayer filed a protest of the Department’s assessment of the gross receipts tax. The main issue to be decided in the protest was whether the Taxpayer could take a deduction from gross receipts for those amounts derived from providing administrative, managerial, accounting and customer services for an affiliate on a nonprofit or cost basis as provided for by statute. Though the Department agreed that services being performed were for affiliates of the Taxpayer, the primary cause of dispute was whether the services were provided on a nonprofit or cost basis and the method through which the Taxpayer calculated and divided the cost among its various affiliates. The evidence showed that the Taxpayer’s operations provided administrative, managerial, accounting, and customer services to its affiliated hotels as the statute requires. But the statute does not specify a methodology for determining the cost of services when supporting the deduction. The Taxpayer calculated its costs as the sum of all expenses and then identified the difference between its revenue and costs to determine whether it produced a profit. The Hearing Officer determined that it was reasonable to rely on the total of those costs as the starting point for determining whether those services were provided at cost or without profit. The Department argued that the Taxpayer should be required to account for the cost of every service to each affiliated hotel, but the Hearing Officer agreed with the Taxpayer that using the sum total of expenses was sufficient. A breakdown by affiliate was not required by the statute. The method employed, that each affiliate paid a portion of the Taxpayer’s total cost in proportion to the revenue that it generated, was a reasonable method to determine the share of the total costs. This method was used consistently by the Taxpayer and demonstrated its entitlement to the deduction. This having been decided, the Hearing Officer ordered the protest granted and the assessment abated.
Total Management Sys Inc