Hotel Consumables Tax Exempt

If you are a hotel that provides soap, shampoo, conditioner, mouthwash, shower caps, pens, notepads, and other similar non-reusable, consumable items (“hotel consumables”), you are in luck!

As you are likely aware, the Texas Comptroller of Public Accounts (“Comptroller”) has long held that hotel consumables placed in rooms for use by hotel guests are subject to sales and use tax at the time of purchase. On April 11, 2013, however, the Texas Court of Appeals reversed the district court’s judgment and the longstanding position of the Comptroller by ruling that such hotel consumables are exempt from sales and use tax. In its opinion in DTWC Corp. v. Combs, No. 03-10-00801-CV (Tex. Ct. App. April 11, 2013), the court reasoned that hotel consumables are being sold by the hotel to its guests and, therefore, qualify as non-taxable under the plain meaning of the sale for resale exemption codified in Section 151.302(a) of the Texas Tax Code.

The Comptroller did not file a petition for review with the Supreme Court of Texas by the deadline, so the Appeals Court’s decision is final. This means that if you are a hotel and have been paying sales and use taxes on purchases of hotel consumables, you may be eligible for a significant tax refund. Our state tax specialists at M&A can assist, so call for a consultation now!

Garage Sales and the Occasional Sale Exemption

In general, sales tax applies to the sale of taxable items in Texas regardless of the price of the item, or the number of sales made by the seller. Texas sales tax is a “transaction tax” imposed on the sale, lease or rental of taxable items. A sale occurs when title or possession of a taxable item transfers for consideration. Each time an item is sold for consideration, sales tax is due. See Texas Tax Code Sections 151.005, 151.051(a), 151.006, 151.151 and 151.154.

Certain transactions, however, such as the sale of one or two taxable items during a 12-month period by a person (or company) who does not habitually engage in the business of selling taxable items, or the sale of the entire operating assets of a business in a single transaction, may qualify for exemption from tax as an “occasional sale” under Texas Tax Code Section 151.304. A new category of occasional sale, (151.304(b)(5), that affects the taxability of used items sold by individuals, became effective July 1, 2007, under House Bill 373 (80th Legislative Session, 2007).

Garage-type sales frequently fall under this new occasional sale provision. As a result of the enactment of 151.304(b)(5), sales tax is not due on the sale of items at a garage sale if:

* the items being sold were originally acquired for personal use by the person or a family member of the person selling them; and
* if the total receipts from sales of the individual’s property in the calendar year the garage sale is made do not exceed $3,000.

The rules for occasional sales do not apply to leases or rentals, or to sales made by persons engaged in the business of selling taxable items, including persons who sell at flea markets, antique malls and similar events or facilities and, persons who hold, or are required to hold, a Texas sales and use tax permit or a similar permit or license issued by another state.

A person may also be considered engaged in the business of selling taxable items if that person routinely operates a location where sales of taxable items occur and sells taxable items purchased from other parties, and not used by that person or a family member prior to being offered for sale. For example, a person who has a “garage sale” every weekend may be considered to be engaged in business if the items being sold were not originally bought for the personal use of that person or a family member.

The exemption applies only to sales made by individuals and does not extend to similar sales that may be made by groups or organizations (such as student groups or church groups) who collect items to sell at a garage sale type event; or to “community-wide” type events that are coordinated or produced by a third-party if the seller is required to pay a fee or commission in order to participate in the event (i.e., booth or space rental fees). In these situations, sales tax is required to be collected unless other exemptions apply.

This exemption applies only to the first $3,000 in total receipts that an individual earns from the sale of items that were originally acquired for personal use by the person, or a family member of the person, selling them. Once the $3,000 threshold is reached, the individual must obtain a sales tax permit and begin collecting state and local sales and use taxes beginning with the first sale after the $3,000 threshold was exceeded, and must continue to collect tax on all sales of taxable items for the remainder of the calendar year.

As with all exemptions, the seller is required to maintain records to document that the exemption applies.

Nonresidential Repair and Remodeling Services House Bill 3319

The bill provides that local sales taxes due on nonresidential real property repair and remodeling services are based on the location of the job site, not the service provider’s place of business. This change makes the local taxes due on nonresidential real property repair and remodeling jobs consistent with the local tax due on separated contracts for residential real property repair and remodeling and new construction jobs.

Collecting Local Tax within Emergency Services Districts Senate Bill 1502

An emergency services district (ESD) may call an election to adopt a sales tax rate that applies to only the part of the district where the additional tax rate will not cause the total local tax rate to exceed the 2 percent rate maximum. This bill effectively allows for multiple rates within an ESD’s territory.

New Sales Tax Holiday for Energy Efficient Products House Bill 3693

Certain energy efficient products purchased during Memorial Day weekend will now be exempt from sales tax. There are no limits on the number of items purchased during this new sales tax holiday. The products qualifying for the exemption include air conditioners (priced under $6000), clothes washers, ceiling fans, dehumidifiers, dishwashers, light bulbs, programmable thermostats and refrigerators (priced under $2000). The first Energy Star Sales Tax Holiday will be Memorial Day Weekend in May 2008.

Texas Hurricane Ike Tax Relief

Taxpayers in Texas counties that were declared disaster areas as a result of Hurricane Ike are eligible for exemptions for certain services. Taxpayers may request extensions of up to 90 days to file state tax returns due in September and October, 2008. Businesses may also postpone paying taxes while they clean up storm-damaged property.

The following are the exempt services:

  • Repairing storm-damaged, non-residential property. (ex. office buildings, stores)
  • Repairing storm-damaged, tangible personal property. (ex. cleaning of clothing, draperies, rug, carpet and furniture)
  • Cutting storm-damaged trees. (However, hauling of trees, limbs and other storm debris are taxable)
  • Staying at a hotel from September 8 through October 14, 2008 as a result of storm.

(Residents from a county or parish delcared a disaster area, or relief workers dispatched to that county)

  • Fundraising for storm victims.
  • Purchasing with vouchers or debit cards provided by relief organizations.

The following are the exempt counties:

Anderson DeWitt Kaufman San Augustine
Angelina Ellis Kenedy San Jacinto
Aransas El Paso Kleberg San Patrcio
Archer Fort Bend Lamar Shelby
Austin Franklin Lavaca Smith
Bee Galveston Liberty Starr
Bell Goliad Lubbock Tarrant
Bexar Grayson Matagorda Titus
Bowie Gregg McLennan Tom Green
Brazoria Hardin Montgomery Travis
Brazos Harris Nacogdoches Trinity
Brooks Harrison Navarro Tyler
Calhoun Henderson Newton Van Zandt
Cameron Hidalgo Nueces Victoria
Cass Hill Orange Walker
Chambers Hopkins Panola Waller
Cherokee Hunt Parker Webb
Collin Jackson Polk Wharton
Colorado Jasper Potter Willacy
Comal Jefferson Randall Williamson
Dallas Jim Hogg Refugio Wise
Denton Jim Wells Sabine Wood

The Comptroller’s Hurricane Ike information::

Texas Tax – Records Retention & Destruction

Frequently Asked Questions

Am I required to keep business records?
Yes, you are required to keep business records so that an auditor from the Comptroller’s office can verify the accuracy of your sales and use tax liabilities.

What type of records do I keep?
Please refer to Rule 3.281 “Records Required; Information Required.”

How long do I keep my business records?
You must keep sales and use tax records for at least four years unless the Comptroller gives written authorization for earlier destruction. This applies to all records that pertain to transactions involving sales or use tax liability. In addition, if your records are being audited by the Comptroller, you should retain all records for the period being audited until the audit is completed (or-if you appeal the findings or file a claim for refund-until your case is resolved).

Should I keep resale or exemption certificates that I have accepted?
Yes. You need to keep the certificates to document claimed nontaxable sales. If you do not keep these records, you are subject to tax, interest, and penalty charges. Comptroller certificates are the only proof of exempt sales.

RULE §3.281 Records Required; Information Required
RULE §3.282 Auditing Taxpayer Records
RULE §3.291 Contractors
RULE §3.295 Natural Gas and Electricity
RULE §3.339 Statute of Limitations