200609846H




HEARING NO.  46,851

RE: **************
TAXPAYER NO.: **************
AUDIT OFFICE: **************
AUDIT PERIOD: JULY 1, 2000 THROUGH FEBRUARY 29, 2004

SALES AND USE TAX/RFD

BEFORE THE COMPTROLLER 
OF PUBLIC ACCOUNTS 
OF THE STATE OF TEXAS

JOE GRECO
Administrative Law Judge

ROBIN ROBINSON
Representing Tax Division

**************
Representing Claimant




HEARING NO.  46,852

RE: **************
TAXPAYER NO.: **************
AUDIT OFFICE: **************
AUDIT PERIOD: MARCH 1, 2004 THROUGH JUNE 30, 2004

SALES AND USE TAX/RFD

BEFORE THE COMPTROLLER 
OF PUBLIC ACCOUNTS 
OF THE STATE OF TEXAS

JOE GRECO
Administrative Law Judge

ROBIN ROBINSON
Representing Tax Division

**************
Representing Claimant


COMPTROLLER'S DECISION


PRELIMINARY DISCUSSION:

At the request of the Claimant, this case is being decided based upon the 
written submissions of the parties.

Unless otherwise indicated, Section references are to Title 2, Texas Tax Code 
Ann. (Vernon 2002), and Rule references are to sections of Title 34, Texas 
Administrative Code.  Notice has been taken of Comptroller’s records pertinent 
to Claimant or the issues raised in this case.

CLAIMANT'S CONTENTIONS:

1. Purchases of in-room amenities were exempt as purchases for resale.

2. Any refund granted as a result of the first contention should be used as 
“offsets” pursuant to Section 151.508.

FINDINGS OF FACT:

1. Claimant operates a ************** in **************, Texas.

2. The amenities involved in Claimant’s refund claims include items such as 
shampoo, soap, lotions, toilet paper, and stationary. Individual portions of 
the consumable amenities are placed in each of Claimant’s hotel rooms for use 
by guests.  Guests may use some or all of the consumables, they may take the 
items home, or they may elect not to use the items and leave them in the room 
upon departure.  Claimant’s guest fee remains the same regardless of the 
disposition of the in-room amenities. 

3. Claimant charges hotel guests one fee for overnight lodging, which is 
subject to state and local hotel occupancy taxes.  The lump-sum fee is 
all-encompassing and includes use of the guest room, the personal amenities, 
and use of the hotel common areas.

4. No evidence was submitted by Claimant showing that sales tax was paid on the 
purchases involved in its first contention.

DISCUSSION AND CONCLUSIONS OF LAW:

First Contention

Claimant’s first contention should be denied because it has failed to establish 
that tax was paid on the purchases at issue, and, even if the tax had been paid 
on the purchases, the items do not qualify for the resale exemption.

Section 151.302 exempts, in part, purchases of tangible personal property for 
resale.  Section 151.006 defines a sale (or purchase) for resale, in pertinent 
part, as a sale of tangible personal property “to a purchaser who acquires the 
property . . . for the purposes of reselling it . . . in the normal course of 
business in the form or condition in which it is acquired.”

Claimant argues that it qualifies for the resale exemption, because it 
purchased the consumable amenities “to transfer them to guests by placing them 
in the guests’ rooms.”  Claimant then asserts that the items were “sold” to 
guests, pointing out that Section 151.005(1) defines a “sale” as a transfer of 
tangible personal property for consideration (i.e., the charges for the 
amenities were factored in the lodging charges paid by guests).  The Tax 
Division opposes Claimant’s contention, arguing principally that Claimant fails 
to qualify for the exemption claimed because it does not sell the personal 
amenities to hotel guests, citing Southwest Airlines Co. v. Bullock, 784 S.W.2d 
563 (Tex. App. – Austin, no writ), and Comptroller’s Decision No. 9,672 (1979).

The Tax Division has the better case.  There is no sale of the personal 
amenities within the meaning of Section 151.005(1).  The provisions of items to 
guests within the rented rooms are merely incidental to Claimant’s business of 
providing accommodation to its guests.  An argument/contention similar to 
Claimant’s was considered and rejected by the Third Court of Appeals in 
Southwest Airlines, in which Southwest argued that it was a “food service 
operator” entitled to purchase non-reusable paper cups tax-free under Rule 
3.293(f)(4).  Southwest believed that its offer of complimentary non-alcoholic 
beverages to passengers was a “sale,” since the cost of the drinks and cups is 
reflected in the price of the airline ticket.  The court disagreed saying, “We 
are not persuaded that a theoretical increase in the ticket price can be said 
to convert a complimentary offer of a beverage into a sale, and such a ‘sale’ 
to convert an air carrier into a food service operator.”

More directly on-point is Comptroller’s Decision No. 9,672, in which a hotel 
operator claimed that disposable items (such as envelopes, guest letterheads, 
and matches) placed in rooms for use by hotel guests were exempt as purchases 
for resale.  In that Decision, the Comptroller held that the disposable items 
did not qualify for the resale exemption, and in doing so found (1) that the 
items were not transferred to guests in the course of performing a service 
subject to sales tax, and (2) that although Article 20.04(D) (now Section 
151.308) granted exemptions for items taxed under other laws, that statute did 
not include any exemption applicable to hotel occupancy tax.  In Decision No. 
9,672, the taxpayer also raised a “double taxation” argument, which the 
Comptroller rejected, explaining no double taxation occurs because the sales 
tax in question is imposed via Chapter 151 of the Tax Code on the transfer of 
tangible personal property (i.e., the disposable items) for consideration, 
while the hotel occupancy tax is imposed, under Chapter 156 of the Tax Code, on 
the charge for occupying a hotel room.

Claimant is attempting to qualify for exempt status.  Exemptions cannot be 
raised by implication, but must affirmatively appear, and all doubts are 
resolved in favor of the taxing authority and against the taxpayer.  Statutory 
exemptions from taxation are subject to strict construction because they place 
a greater burden on other tax-paying businesses and individuals.  Bullock v. 
National Bancshares Corp., 584 S.W.2d 268 (Tex. 1979), and Teleprofits of Texas 
v. Sharp, 875 S.W.2d 748 (Tex. Civ. App. – Austin 1994).

Based on the record, it is concluded that Claimant has failed to prove, by 
clear and convincing evidence, that the personal amenities provided to hotel 
guests are exempt under Sections 151.006 and 151.302.  Accordingly, Claimant’s 
first contention should be denied.

Second Contention

Because Claimant’s first contention should be denied, it is not necessary to 
address Claimant’s second contention.

RECOMMENDATION:

Claimant’s contentions, and the related refund claims, should be denied.

SIGNED September 5, 2006.


JOE GRECO
Administrative Law Judge


HEARING NOS. 46,851 AND 46,852

ORDER OF THE COMPTROLLER

The above decision of the Administrative Law Judge is approved and adopted in 
all respects.  This decision becomes final twenty-three (23) days from the date 
of this Order.

If a rehearing is desired, a Motion for Rehearing must be filed with the 
Administrative Law Judge no later than twenty-three (23) days after the date of 
this Order, and must state the grounds upon which the motion is based.

RENDERED and ISSUED September 5, 2006.


CAROLE KEETON STRAYHORN
Texas Comptroller




ACCESSION NUMBER: 200609846H
SUPERSEDED: N
DOCUMENT TYPE: H
DATE: 09/05/2006
TAX TYPE: SALES