On April 11, 2013, the Texas Court of Appeals (“Court”) reversed the district court’s decision and held that items placed in hotel rooms for use by hotel guests such as soap, shampoo, conditioner, mouthwash, shower caps, pens, and notepads (“hotel consumables”) may be purchased exempt from sales tax under the resale exemption. DTWC Corp. v. Combs, No. 03-10-00801-CV (Tex. Ct. App. April 11, 2013).

The taxpayer, DTWC Corporation (“DTWC”), operates a hotel and charges guests a specific fee for overnight hotel accommodations. As part of the hotel accommodation, DTWC provides hotel consumables to its guests in their hotel rooms. Texas law exempts from sales and use tax the sale for resale of a taxable item. A “sale for resale” includes a sale of tangible personal property to a purchaser who acquires the property for the purpose of reselling it in the normal course of business in the form or condition in which it is acquired. Having paid sales tax on the purchase of hotel consumables, DTWC sought a refund arguing that these items were exempt as purchases for resale under Texas Tax Code §§ 151.302(a), 151.005(1), and 151.006(a)(1). The Texas Comptroller of Public Accounts (“Comptroller”) put forth multiple arguments as to why she believed DTWC was not entitled to the resale exemption for these items.

The Comptroller argued that the purpose of the resale exemption is to prevent an item from being twice subject to sales tax. Since the hotel consumables were subject to sales tax when they were purchased and the hotel occupancy tax later when a guest pays for a hotel room, the Comptroller argued that double taxation did not occur because sales tax was not charged twice. The Comptroller also argued that there was no actual resale of the hotel consumables to hotel guests. The Court disagreed. It determined that the plain language Read More