WAC 458-20-258   Travel agents and tour operators.  (1) Introduction. This section describes the business and occupation (B&O) taxation of travel agents and tour operators. Travel agents are taxed at the special travel agent rate under RCW 82.04.260(10). Tour operators are generally taxed under the service or other business classification under RCW 82.04.290. However, the business activities of tour operators may sometimes include activities like those of a travel agent. This section recognizes the overlap of activities and taxes them consistently.

     (2) Definitions:

     (a) "Commission" means the fee or percentage of the charge or their equivalent, received in the ordinary course of business as compensation for arranging the service. The customer or receiver of the service, not the person receiving the commission, is always responsible for payment of the charge.

     (b) "Pass-through expense" means a charge to a tour operator business where the tour operator is acting as an agent of the customer and the customer, not the tour operator, is liable for the charge. The tour operator cannot be primarily or secondarily liable for the charge other than as agent for the customer. See: WAC 458-20-111 Advances and reimbursements.

     (c) "Tour operator business" means a business activity of providing directly or through third party providers, transportation, lodging, meals, and other associated services where the tour operator purchases or itself provides any or all of the services offered, and is itself liable for the services purchased.

     (d) "Travel agent business" means the business activity of arranging transportation, lodging, meals, or other similar services which are purchased by the customer and where the travel agent or agency merely receives a commission for arranging the service.

     (3) Travel agents.

     (a) The gross income of a travel agent or a travel agent business is the gross commissions received without any deduction for the cost of materials used, labor costs, interest, discount, delivery cost, taxes, losses, or any other expense. It is taxed at the special travel agent rate.

     (b) Gross receipts, other than commissions, from other business activities of a travel agent, including activities as a tour operator, are taxed in the appropriate B&O classification, service, retailing, etc., as the case may be.

     (4) Tour operators.

     (a) The gross income of a tour operator or a tour operator business is the gross commissions received when the activity is that of a travel agent business.

     (i) When a tour operator receives commissions from a third party service provider for all or a part of the tour or tour package, the gross income of the business for that travel agent activity is the commissions received.

     (b) However, if the activity is that of a tour operator business, receipts are B&O taxable in the service classification without any deduction for the cost of materials used, labor costs, interest, discount, delivery cost, taxes, losses, or any other expense; except, receipts attributable to pass-through expenses are not included as part of the gross income of the business.

     (5) Examples:

     (a) A travel agent issues an airplane ticket to a customer. The cost of the ticket is $250 which is paid by the customer. The travel agent receives $25 from the airline for providing the service.

     (i) The gross income of the business for the travel agent is the $25 commission received.

     (ii) The gross income of the business is taxed at the special travel agent rate.

     (b) A tour operator offers a tour costing $1,500 per person. The tour cost consists of $800 airfare, $500 lodging and meals, and $200 bus transportation. The tour operator has an arrangement with each of the service providers to receive a 10% commission for each service of the tour, which in this case is $150 ($80 + $50 + $20). The tour operator issues tickets, etc, only when paid by the customer and is not liable for any services reserved but not provided.

     (i) The tour operator is engaged in a travel agent activity and the gross income of the business is commissions received, $150.

     (ii) The gross income of the business, $150, is taxed at the special travel agent rate.

     (c) The same facts as in example (b) except that the tour operator has a policy of requiring 10% or $150 as a down payment with the remaining $1,350 payable 20 days prior to departure with 95% refundable up to 10 days prior to departure and nothing refunded after 10 days prior to departure. The customer cancels 15 days prior to departure and is refunded $1,425 with the tour operator retaining $75.

     (i) The gross income of the tour operator business is the $75 retained. No amount is attributable to pass-through expense since the tour operator was not obligated to the service provider in the event of cancellation and the tour operator was not acting as the agent of the customer.

     (ii) The gross income of the business, $75, is taxed in the service B&O tax classification.

     (d) A tour operator offers a package tour for the Superbowl costing $800 per person. The tour operator purchases noncancellable rooms in a hotel for $300 per room for 2 nights, and game tickets which cost $100 each. The package includes airfare which costs $200 per person for which the tour operator receives the normal commission of $20. As an extra feature, the tour operator offers to provide, for an extra cost, special event tickets, if available, at his cost of $50 each. The tour operator is B&O taxable as follows:

     (i) The gross income of the tour operator business is $600 ($800 less $200 airfare). Because the tour operator purchased the rooms and the game tickets in its own name and is liable for the rooms or tickets if not resold, the tour operator is not operating as a travel agent business and is B&O taxable in the service classification. If the tour operator receives a commission on the rooms sold to itself, the activity remains taxable as a tour operator business under the service classification and the commission received is treated as a cost discount, not included in the gross income of the business.

     (ii) The $50 received for the special event ticket is attributable to a pass-through expense and is not included in the gross income of the tour operator business. The special event ticket receipt is attributable to a pass-through expense because the tour operator is acting as an agent for the customer.

     (iii) The $20 received as commission from the sale of the airfare is a travel agent business activity and is included as gross income of a travel agent and taxed at the special travel agent rate.



[Statutory Authority: RCW 82.32.300. 90-17-003, § 458-20-258, filed 8/2/90, effective 9/2/90.]