Does a bed and breakfast owe sales tax when it buys soap, shampoo, wine, jam, and jelly that it gives to guests for free?

Plain-English summary

Jim Axford, opening a new bed and breakfast, asked whether he owes sales tax on the soap, shampoo, wine, jam, and jellies he plans to give guests for free during their stay, with no separate charge ever billed for any of it.

The Department split the answer by item type. Soap, shampoo, and wine fall under two overlapping rules that both point the same way: hotel-supply purchases like soap and other supplies used in running a hotel are taxable to the hotel itself (not treated as bought for resale, even though guests use them), and separately, anything bought and given away for free for promotional purposes is likewise treated as a taxable purchase by the giver, not a sale to the recipient. Since Axford never charges guests for these items, both rules independently make his purchase of soap, shampoo, and wine a taxable retail sale to him.

Jam and jelly get a different result -- not because the giveaway analysis is different, but because a separate, more specific exemption overrides it: purchases of food items are exempt from New York sales tax under § 1115(a)(1), regardless of whether they're resold, used internally, or given away. So Axford's jam and jelly purchases stay tax-exempt even while his soap, shampoo, and wine purchases are taxable.

What this means for you

Bed and breakfast and hotel owners

Complimentary in-room amenities like soap, shampoo, and toiletries are taxable purchases for you, not tax-free "supplies for guests" -- you pay sales tax when you buy them, the same as if you used them yourself. The same goes for complimentary alcohol.

Anyone giving away food items as part of a hospitality amenity

Food items you buy to give away for free -- like jam and jelly here -- keep their food exemption regardless of the giveaway, because the food exemption is broader than (and independent of) the promotional-giveaway rule that taxes most other freebies.

Accountants and tax professionals

This ruling is a clean illustration of two rules reinforcing the same result (hotel-supply taxability plus the promotional-giveaway rule) for most items, while a third, unrelated exemption (food) carves out one category from the same fact pattern -- useful when auditing a hospitality client's complimentary-amenity purchases item by item rather than as a single bundle.

Common questions

Q: Does it matter that the soap and wine are given away for free, not sold?
A: No -- purchases made to be given away for free are still taxable to the purchaser under New York's promotional-giveaway rule; giving something away doesn't create a resale exemption.

Q: Why are jam and jelly treated differently from soap and wine?
A: Because New York's food exemption applies regardless of how the food is used or given away, while soap, shampoo, and alcoholic beverages have no comparable blanket exemption.

Q: Would this analysis change if the B&B charged a separate fee for these items?
A: Charging separately wouldn't help the soap/shampoo/wine analysis (hotel supplies are taxable to the hotel either way), but a separate retail sale of jam or jelly would remain independently exempt as food.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(4)(i) (retail sale)
• Tax Law § 1105(a) (tax on retail sales of tangible personal property)
• Tax Law § 1105(d)(i) (tax on food and drink sold by restaurants and similar establishments)
• Tax Law § 1115(a)(1) (exemption for food)
• 20 NYCRR § 526.6(c) (resale exclusion; promotional giveaways not for resale)
• 20 NYCRR § 527.9(i)(2) (taxable hotel purchases, including soap and supplies)

Prior rulings referenced:

• First Colony Company, TSB-A-99(13)S (March 1, 1999)
• Matter of Helmsley Enterprises, Inc. v. Tax Appeals Tribunal, 187 A.D.2d 64

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1999.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a99_54s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-99(54)S
Sales Tax
November 30, 1999

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S990920A

On September 20, 1999, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Jim Axford, 6 Rippleton Road, Cazenovia, NY 13035.
The issue raised by Petitioner, Jim Axford, is whether purchases of soap, shampoo, jam, jelly
and wine by a bed and breakfast establishment that are offered on a complimentary basis to guests
are subject to New York State and local sales and use taxes.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner is opening a new bed and breakfast. Petitioner purchases soap, shampoo, wine,
jam, jellies and the like, which will be used or consumed by the guests during their stay at the bed
and breakfast. Petitioner offers these items to the guests on a complimentary basis. Petitioner will
not charge guests for any of these items at any time.
Applicable Law and Regulations
Section 1101(b)(4)(i) defines retail sale, in part, as:
A sale of tangible personal property to any person for any purpose, other than
(A) for resale as such or as a physical component part of tangible personal property
...
Section 1105(a) of the Tax Law imposes sales tax upon “[t]he receipts from every retail sale
of tangible personal property, except as otherwise provided in this article.”
Section 1105(d)(i) of the Tax Law imposes a tax on “[t]he receipts from every sale of beer,
wine or other alcoholic beverages or any other drink of any nature, or from every sale of food and
drink of any nature or of food alone, when sold in or by restaurants, taverns or other establishments
in this state. . . .”
Section 526.6(c) of the Sales and Use Tax Regulations provides, in part:
(1) Resale Exclusion. Where a person, in the course of his business
operations, purchases tangible personal property or services which he intends to sell,
either in the form in which purchased, or as a component part of other property or
services, the property or services which he has purchased will be considered as

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Sales Tax
November 30, 1999

purchased for resale, and therefore not subject to tax until he has transferred the
property to his customer.
*

*

*

(4)(i) Tangible personal property which is purchased and given away without
charge, for promotion or advertising purposes is not purchased for resale. It is a retail
sale to the purchaser thereof, and is not a sale to the recipient of the property. (ii)
Tangible personal property which is purchased for promotional or advertising
purposes and sold for a minimal charge which does not reflect its true cost, or which
is not ordinarily sold by that person in the operation of his business, is a retail sale
to the purchaser thereof, and not a sale to the recipient of the property. (iii) A resale
certificate may not be used by the person making the purchases described in
subparagraphs (i) and (ii) of this paragraph for such purchases.
Section 527.9(i)(2) of the Sales and Use Tax Regulations provides:
The following are examples of purchases made by hotels which are subject
to tax:
(i) Fuel, gas, electricity, steam, telephony and telegraphy and other utilities.
(ii) Furniture used in guest rooms and elsewhere.
(iii) Soap, paper products and other supplies used in the operation of the
hotel; and
(iv) Items which will be used for recreational purposes, such as golf carts,
pool chairs or other recreational equipment.
Opinion
In First Colony Company, Adv Op Comm T & F, March 1, 1999, TSB-A-99(13)S the
opinion held that the serving of complimentary cocktails by the petitioner to its customers, where
no payment is received for providing the cocktails, is not subject to the sales tax imposed by Section
1105(a) of the Tax Law. However, the petitioner’s purchase of tangible personal property, such as
alcoholic beverages and mixers, to produce the drinks would be subject to State and local sales or
compensating use taxes.
In this case, Petitioner is purchasing soaps, shampoos, jams, jellies, and wines, etc., solely
for the purpose of offering these items to the guests on a complimentary basis. The purchase of

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Sales Tax
November 30, 1999

items such as soap, paper products and other supplies by a hotel or motel are not deemed to be
purchased for resale since such items are deemed to be consumed in the course of the operation of
a hotel or motel. See Matter of Helmsley Enterprises, Inc. v. Tax Appeals Tribunal, 187 AD2d 64;
Section 527.9(i)(2) of the Sales and Use Tax Regulations. Pursuant to Section 526.6(c)(4) of the
Sales and Use Tax Regulations tangible personal property such as complimentary jam, jelly or wine,
which is purchased and given away without charge for promotion or advertising purposes is not
purchased for resale. See First Colony Company, supra. Accordingly, Petitioner’s purchases of
soaps, shampoos, jams, jellies, wines and the like, solely for the purpose of offering these items to
the guests on a complimentary basis are retail sales to the Petitioner and are, therefore, subject to
sales tax under Section 1105(a) of the Tax Law at the time of purchase. It should be noted that
purchases of food items, such as jam and jelly, are exempt from sales tax under Section 1115(a)(1)
of the Tax Law.

DATED: November 30, 1999

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.