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Hotel Industry Overview - August 2007 - Industry Operating Procedures & Government Regulatory Requirements

LMSB-04-0807-054

"This document is not an official pronouncement of the law or the position of the Service and cannot be used, or cited, or relied upon as such."

Industry Operating Procedures

Some hotels are heavily involved in franchising activities. Franchisees will pay a fixed per-cent of receipts to a franchiser for advertising and royalties. Some hotel franchisers will lease the structure to the franchisee for a monthly rate and/or a percentage of sales.

The internal controls of these chain hotels are extensive; conversely, individual independent hotels do not always enjoy the same degree of controls over operations.

Ownership takes diverse forms, ranging from publicly-held companies to individuals. Included within this span are churches and other not-for-profit organizations, municipalities, partnerships and REITs.  Of the various ownership arrangements, REITs seem to provide some of the more interesting, and perhaps more involved sets of rules. 

Many firms desire to convert to the REIT status because the taxable income that is distributed to the shareholders is not taxed.  Therefore, REITs avoid double taxation.

Effective January 1, 2001, REITs were allowed to wholly own taxable subsidiaries.  These taxable subsidiaries were, in turn, allowed to lease hotels from the related REIT and/or its affiliates, provided certain conditions were met, and provided the subsidiary did not manage or operate any hotels or health care facilities. 

These comments are some highlights of the REIT status.  A full analysis the law applying to REITs is clearly beyond the scope of this document.

Also beyond the scope of this document are numerous potential employment tax issues, unrelated business income issues in the case of non-profits, and any other areas which generally fall outside the purview of LMSB.  Nevertheless, it should be kept in mind that the hotel industry entails a great variety of business arrangements which include not merely hotel owners, but also hotel operators, designers, builders and so on.

Government Regulatory Requirements

A.     Federal Requirements

The Federal Trade Commission (FTC) publishes the rulebook for promotional allowance marketing, titled Guides for Advertising Allowances and Other Merchandising Payments and Services, these guides are usually referred to as “The Guides,” “the FTC Guides” or the “Fred Meyer Guides.”

Text of the Americans with Disabilities Act, Public Law 336 of the 101st Congress, enacted July 26, 1990. The ADA prohibits discrimination and ensures equal opportunity for persons with disabilities in employment, State and local government services, public accommodations, commercial facilities, and transportation. It also mandates the establishment of TDD/telephone relay services.

B.    State Requirements

Each state has their own specific requirements and regulations regarding the manufacture, sale, resale, and consumption of alcoholic beverages.

C.    Local Requirements

Many localities have controls over the purchase, sale, resale and consumption of alcoholic beverages.

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Page Last Reviewed or Updated: 29-Nov-2013