TX: Hotel operator owed use tax on items provided to guests

The Texas Court of Appeals recently affirmed a trial court decision holding that a hotel’s purchases of consumables did not qualify for a resale exemption from sales and use tax. The taxpayer, a hotel owner, provided hotel guests with various items in their rooms, such as toilet paper, soap, lotion, shampoo, and cups. Additional consumables were also provided at breakfast, during evening soda and popcorn events, and from the front desk when requested by a guest. The taxpayer charged its customers a non-itemized amount for occupancy of the room. According to the taxpayer, this amount included a charge of $1.57 that was intended to compensate the hotel for the cost of the consumables. During the period in question, the taxpayer did not pay sales tax on the items, and it did not collect sales tax from customers on the consumables. The Comptroller audited the hotel and assessed the taxpayer sales tax on the items. The taxpayer protested and after a trial court ruled in favor of the Comptroller, the taxpayer appealed.

Under Texas law, sales of tangible personal property acquired for the purpose of resale are exempt from sales and use tax.  In an earlier court of appeals decision, the court ruled that a hotel’s purchases of similar non-reusable, consumable items were exempt from sales and use tax under the resale exemption.  In that case, the Comptroller and the taxpayer had stipulated that the hotel charged one fee for overnight lodging and that fee included the cost of the room and amenities, including in-room consumables.  In the instant case, there was no similar stipulation, and the court determined that the taxpayer’s purchases did not qualify for the sale for resale exemption. In the court’s view, despite the $1.57 included in the room charge, the taxpayer had not proven that it purchased the items for the purpose of reselling them to hotel guests. Notably, the taxpayer’s website advertised that “extras” were free and characterized the consumables at issue as “extras.” Moreover, the taxpayer did not itemize the cost of the consumables nor were guests informed that they were paying for the consumables as part of the rate for the hotel room rental. Lastly, customers were not limited to the number of items provided by the hotel. Please contact Chad Woodfork at 713-319-3846 with questions on Alamo National Building Management, LP v. Hegar.