Meeting Room Tax Debate Settled in Illinois

The State of Illinois and its hoteliers have reached an agreement over a proposed tax, which had been hotly disputed, that promises to raise the cost of some meetings in the state.

The Banquet Room Rental Sales Tax requires that hotels renting meeting rooms or banquet halls for the purpose of serving food and beverage must impose sales tax on the room rental as well as on the F&B, a practice that had not been done before.

Hoteliers agreed reluctantly to the measure, which requires them to collect and pay the tax for all future F&B-oriented room rentals, as well as retroactively back to mid-2004.

While the impact on some meetings could be severe — sales tax in the Chicago area, for example, is 10.25 percent — the tax may be moot for many meetings. Often, banquet room rentals are waived by facilities when F&B reaches a certain level.

"But anytime a state makes itself less attractive, there is an effect," said Gary LaBranche, president and CEO of the Association Forum of Chicagoland. "If it becomes less attractive, some meetings will travel to less-expensive jurisdictions. We want to keep the prices as low as possible."

The pathway to the final form of the tax, and the state's settlement with Illinois hotels, was a long and tortuous one.

An original law taxing meeting rooms used for F&B was passed in 1993, but never enforced. However, in 2003, with the advent of a new state administration and with Illinois suffering from a recession, the state's revenue department announced it would begin enforcing the original regulation, and make it retroactive back to 1993.

Through aggressive negotiations by the Illinois Hotel & Lodging Association, the tax became effective in July with only a 15-month retroactive provision.

There is still confusion over how much F&B would trigger the room-rental tax. But, in the draft of the new regulation, alcohol and anything more than snacks signify that "the true object of [renting the room] is deemed to be the sale of food and beverages and not the rental of the room."

Marc Gordon, president and CEO of IHLA, is resigned to the settlement, but remains chafed.

"The state is saying they know our true intent, which is to disguise the renting of a room by food and beverage. It's a creative interpretation of the truth," he said.