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)](c). 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

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