Was a linen company's recurring rental of reusable cloth napkins to restaurants subject to Florida sales tax?

Subject

Napkins (Cloth), Rental

Plain-English summary

The Department concluded that the recurring rental of cloth napkins to restaurants was subject to Florida sales tax. The linen company delivered clean napkins, picked up used ones for cleaning and rerental, and invoiced the restaurant at a predetermined rate per napkin.

Florida taxed the lease or rental price paid for tangible personal property. The Department found that the transaction plainly was a rental from the linen company to the restaurant and therefore applied the 6% rate stated in the ruling.

The resale and one-time-use arguments failed. Cloth napkins were repeatedly cleaned and reused, so they were not materials intended for one-time packaging. The restaurant-supply rule expressly treated paper napkins as items resold with food, but did not extend that treatment to cloth napkins. Instead, reusable cloth napkins resembled the listed supplies a restaurant consumed in operating its business.

What this means for you

Under the rule applied in this 1997 ruling, a customer's one-time use did not make a rented item a one-time-use product when the rental company recovered, cleaned, and reused it.

Including the napkin's cost in the meal price also did not make the restaurant's rental a tax-exempt purchase for resale. The regulation's paper-napkin treatment did not transfer to reusable cloth.

Common questions

Q: Were the napkins taxable even though each patron used one only once? Yes. The linen company reused the napkins after cleaning, so they were not one-time-use materials.

Q: Why were paper napkins treated differently? The cited rule specifically deemed paper napkins resold to patrons as part of the food sale.

Q: Did taxing the rental duplicate the tax on the meal? The taxpayer raised that argument, but the Department still treated the rental as a separate taxable transaction.

Q: What was the taxable amount? The linen company's rental price charged per napkin.

Citations and references

• Fla. Stat. § 212.05(1)(d) — tax on the lease or rental price of tangible personal property
• Fla. Stat. § 212.02(14)(c) — one-time packaging-material provision discussed in the ruling
• Fla. Admin. Code R. 12A-1.040(3) — restaurant supplies deemed resold or consumed in business operations
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97A-028

Original ruling text

Apr 17, 1997

Re: Technical Assistance Advisement 97(A)-028
Sales and Use Tax; Napkins (Cloth), Rental
Sections 212.02(15)(c), 212.05(1)(d), Florida Statutes
Rule 12A-1.040, Florida Administrative Code
XXX (hereinafter Taxpayer)
Taxpayer I.D. # XX

Dear :

This is a response to your petition received January 13, 1997,
for the Department's issuance of a Technical Assistance
Advisement ("TAA") concerning the above referenced matter. Your
petition has been carefully examined and the Department finds it
to be in compliance with the requisite criteria set forth in
Chapter 12-11, F.A.C. This response to your request constitutes
a TAA and is issued to you under the authority of s. 213.22,
F.S.

STATED FACTS

This letter responds to your January 9, 1997 letter, which
presented your request for guidance on the applicability of our
State's sales tax to rental of cloth napkins under facts and
circumstances you have described, as follows:

The cloth napkins at issue are owned by a linen company and
provided to restaurant patrons for exclusive use with their
food and beverage products. The arrangement between the
restaurant and the linen company is structured as a rental
of tangible personal property. On a recurring basis the
linen company will deliver clean, cloth napkins and pick up
discarded or used napkins for cleaning and ultimate
rerental. An invoice is rendered in conjunction with such
deliveries, the total of which is computed based on a
predetermined rental rate applied on a per napkin basis.

You have presented the following question:

Based on the above facts and circumstances, is the rental
of napkins a taxable event when such napkins are provided
as part of a food and beverage product sold to the ultimate
consumer?

LAW AND ANALYSIS

Section 212.05, F.S. (1996 Supplement), provides in part:

Sales, storage, use tax.
It is hereby declared to be the legislative intent that
every person is exercising a taxable privilege who engages
in the business of selling tangible personal property at
retail in this state... or who rents or furnishes any of
the things or services taxable under this chapter, or who
stores for use or consumption in this state any item or
article of tangible personal property as defined herein and
who leases or rents such property within the state.
(Emphasis supplied)

(1) For the exercise of such privilege, a tax is levied on
each taxable transaction or incident, which tax is due and
payable as follows:

(d) At the rate of 6 percent of the lease or rental price
paid by a lessee or rentee, or contracted or agreed to be
paid by a lessee or rentee, to the owner of the tangible
personal property.

From your statement of the facts, quoted above, there can be no
doubt that the transaction is a rental by the linen supply
company of the napkins to the restaurant within the meaning of
paragraph (d). It is, therefore, subject to the six percent tax
levied thereby.

Your letter suggests that Rule 12A-1.040, Florida Administrative
Code, can be interpreted as pertinent to your inquiry. Your
letter observes:

One specific exemption provided for in Rule 12A-1.040
applies to paper napkins sold for use in the operation of

restaurants or similar establishments. Paper napkins are
deemed to be resold to patrons as part of their purchased
food and beverage products. Pursuant to this regulation,
the purchase of paper napkins by a restaurant or similar
establishment is exempt from sales or use tax under a sale
for resale exemption.

Although Rule 12A-1.040 does not specifically address
rented, cloth napkins, it appears that rented napkins meet
the criteria for exemption. Rented napkins are considered
part of the food product in the same manner as paper
napkins, with the cost of such items included in the sales
price of the food or beverage product. The rented napkins
are acquired for a specific event or purpose and used a
single time before being discarded (i.e., returned to the
linen company). Additional napkins will then be rented
(purchased) from the linen company to be distributed to
additional patrons for their one time use....

The legislative authority for Rule 12A-1.040 is found in
Florida Statute (FS) Section 212.02(14).
Specifically, the legislature provided an exemption for
"... materials, containers, labels, sacks, or bags intended
to be used one time only for packaging tangible personal
property for sale..." Rule 12A-1.040 was drafted by the
DOR to clarify the legislative intent behind this
exemption. No question arises as to the intent regarding
paper napkins. However, since the rule specifically
mentions paper napkins, an issue arises as to the
appropriate treatment for rented napkins. Our review of
the relevant law finds no basis to differentiate between
the two for sales tax purposes. Rented napkins are
acquired for the same purpose as paper napkins and, due to
the legal mechanics of the arrangement between the
restaurant and the linen company, they are used only one
time and discarded.

... [R]ented napkins would be considered to be purchased by
the restaurant for a specific event in essentially the same
fashion as the purchase of paper napkins. Since each
rented napkin constitutes a separate sale, the sale of

which is for a single use in conjunction with the
subsequent sale of food and beverage products, an exemption
should apply. The legislative intent regarding one time
use and packaging [has] been satisfied.

If sales tax is imposed on the cost of rented napkins used
in a dining establishment, a tax duplication issue exists,
since sales tax is required to be collected on the full
sales price of the meal....

You state the following as your "Requested Ruling":

Napkins distributed by restaurants in connection with food
and beverage products are provided for the one time use of
restaurant patrons, the ultimate consumer. The price of
the napkins used in combination with the food or beverage
product is implicit in the price of such product. Having
determined this, the napkins are considered to be resold to
restaurant patrons, and, therefore, are exempt from sales
tax when purchased or rented by the restaurant under a sale
for resale exemption.

The reliance upon s. 212.02(14)(c), F.S., and Rule 12A-1.040,
F.A.C., of the above excerpts of your letter is misplaced.
These cloth napkins are not, as provided in s. 212.02(14)(c),
"intended to be used one time only". Instead, they are used
over and over, being returned after each use to the linen
company for cleaning and reuse.

Similarly, no support for exemption of these rentals of cloth
napkins to restaurants is provided by subsection (3) of Rule
12A-1.040, F.A.C., which provides:

(3) Paper and plastic coated plates, paper napkins, paper
cups, butter chips, paper tops for individual creamers,
paper covers for fruit juice glasses, souffle cups,
hamburger and frankfurter holders, straws, wooden and
plastic spoons and forks are exempt when sold to a
purchaser for use in connection with the operation of a
restaurant... licensed by the Division of Hotels and
Restaurants of the Department of Business [and

Professional] Regulation. Purchases by these
establishments of the following items are taxable:
Toothpicks, doilies, placemats, chicken baskets,
burgerbaskets, guest checks, menus, paper mats, towels,
toilet tissue, toothpick frills, chop holders, aluminum
foil for baking and serving potatoes and leftover bags
furnished by restaurants.

Cloth napkins rented by restaurants are not like the items
enumerated in the first sentence of subsection (3), which can be
deemed to be resold to the restaurant's patrons as part of the
sale of the food it serves them. They are like those enumerated
in the second sentence, purchases of which by restaurants are
deemed for use by the restaurant in conducting its business,
and, thus, subject to sales and use tax. The first sentence
deems paper napkins, but not cloth napkins, resold to the
restaurant's patrons.

This response constitutes a technical assistance advisement
under s. 213.22, F.S., which is binding on the department only
under the facts and circumstances described in the request for
this advice as specified in s. 213.22, F.S. Our response is
predicated upon those facts and the specific situation
summarized above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the
statutes or rules upon which this advice is based may subject
similar future transactions to a different treatment than
expressed in this response.

You are further advised that this response and your request are
public records under Chapter 119, F.S., which are subject to
disclosure to the public under the conditions of s. 213.22, F.S.
Your name, address, and any other details which might lead to
identification of the taxpayer must be deleted by the department
before disclosure. In an effort to protect confidential
information, we request you notify the undersigned in writing
within 15 days of any deletions you wish made to the request or
this response.

Sincerely,

Bruce H. Williams
Technical Assistance and Dispute
Resolution
(904) 488-2506

BHW/ja
Ctrl# 27582