Rev. Rul. 85-94

1985-2 C.B. 33, 1985-27 I.R.B. 5.

INDUSTRIAL DEVELOPMENT BONDS; EXEMPT FACILITY; CONVENTION OR TRADE SHOW

Published: July 8, 1985

SECTION 103.-INTEREST ON CERTAIN GOVERNMENTAL OBLIGATIONS, 26 CFR 1.103-8: Interest on bonds to finance certain exempt facilities

  Industrial development bonds; exempt facility; convention or trade show. Facilities occupying three floors of an eighteen story hotel will not qualify as exempt convention or trade show facilities.

ISSUE

  Will facilities occupying three floors of an eighteen story hotel as described below qualify as exempt convention or trade show facilities within the meaning of section 103(b)(4)(C) of the Internal Revenue Code?

FACTS

  As part of a cooperative effort among private investors, local businesses, and the government of CI to revitalize convention activity in the city, a developer proposes to acquire and reconstruct a hotel in CI. The entire project will cost an estimated $35x million dollars. Most of the funds for the project will be from private, taxable obligations. However, as part of the financing plan, the CI Industrial Development Authority will issue industrial development bonds in the amount of $8x million dollars to finance the construction and restoration of convention and trade show facilities located in the hotel.

  The convention and trade show facilities will consist of the first, second and eighteenth floors of the hotel. As restored, the first floor will contain a ballroom as well as nine meeting rooms. The second floor will consist in major part of hospitality suites that will be leased for the display of goods, wares, etc., in connection with convention activities and trade shows. The eighteenth floor will consist of an additional ballroom, a reception room, and five meeting rooms. All of these facilities will be made available for rental to the general public in accordance with a fixed rate schedule.

  In addition, the proceeds of the loan will also be used to finance part of the cost of certain public areas and facilities which serve the convention facilities as well as other parts of the hotel.

LAW AND ANALYSIS

  Section 103(a) of the Code provides that gross income does not include interest on the obligations of a state or its political subdivisions.

  Section 103(b)(1) of the Code provides that, with certain exceptions, industrial development bonds shall not be treated as obligations described in section 103(a).

  Section 103(b)(4)(C) of the Code excepts from section 103(b)(1) obligations which are part of an issue substantially all of the proceeds of which are to be used to provide convention or trade show facilities.

  Section 1.103-8(d)(2) of the Income Tax Regulations defines the term  'convention or trade show facilities' to mean special purpose buildings or structures, such as meeting halls or display areas, which are generally used to house a convention or trade show, including facilities functionally related and subordinate to such facilities such as parking lots or railroad sidings. A hotel or motel which is available to the general public, whether or not it is intended primarily to house persons attending or participating in a convention or trade show is neither a convention or trade show facility nor functionally related and subordinate thereto. Hotel facilities are likewise not within the definition of 'convention or trade show facilities'. See, S. Rep. No. 1014, 90th Cong., 2d Sess. 37 (1968), 1968-2 C.B. 790, 809.

  Thus, the exemption for convention and trade show facilities under section 103(b)(4)(C) of the Code applies only to special purpose buildings or structures constructed for housing conventions or trade shows and not to facilities that are an integral part of a hotel. Here, the convention and trade show facilities comprise three floors of an eighteen story hotel and are functionally an integral part of the hotel.

HOLDING

  The facilities occupying three floors of an eighteen story hotel will not qualify as exempt convention or trade show facilities within the meaning of section 103(b)(4)(C) of the Code.

Rev. Rul. 85-94, 1985-2 C.B. 33, 1985-27 I.R.B. 5.