When a motel buys soap, paper cups and bathroom tissue to place in guest rooms, can it buy them tax-free as a purchase for resale or as production materials?

Plain-English summary

Lanz's Motel, Inc. buys items such as plastic or paper cups, bathroom tissue and guest soap and places them in its rooms for guests. It asked whether it can buy these tax-free. Its argument was twofold: the items are effectively "re-sold" to guests because their cost is folded into the room rate, and alternatively they are materials used to produce a salable item (the room stay) and therefore exempt.

The Department held the supplies are taxable when the motel buys them.

• The room charge is taxed as occupancy, not as a sale of goods. Under § 1105(e), a motel's receipts are taxed as charges for room occupancy — the motel is not selling the cups, tissue and soap to guests as tangible personal property.
• The resale exclusion doesn't apply. Section 1101(b)(4) lets a buyer purchase tax-free only for resale "as such" or as a physical component of property it sells, or for use in performing certain § 1105(c) services. The motel does none of these with the supplies, so its purchases are taxable retail sales under § 1105(a).
• The regulation is explicit. 20 NYCRR 527.9(i)(2) states that a hotel's purchases of soap, paper products and other operating supplies are subject to tax.
• No production exemption. The production exemptions require producing tangible personal property (or gas, electricity, refrigeration or steam) for sale. A motel produces none of these, so the supplies don't qualify as production materials.

Result: the motel is the consumer of these supplies and owes sales tax on their purchase.

What this means for you

"We build the cost into our price" is not the same as reselling. Folding the cost of consumable supplies into a taxable service charge (here, the room rate) does not turn the supplier's sale to you into a tax-free purchase for resale. Because the customer pays for occupancy — not for the soap and tissue as separate goods — the hotel is the end user and pays tax on the supplies.

Hotels and motels: your in-room and operating supplies are taxable. Soap, paper products, cups and similar guest amenities are consumed in running the business. The Department's regulation treats them as taxable purchases, so budget for sales tax on them rather than expecting a resale certificate to cover them.

The production exemptions are for making goods for sale. If your business isn't manufacturing or producing tangible personal property (or energy/refrigeration) for sale, don't count on the production-input exemptions; a service business generally consumes its supplies and pays tax on them.

Common questions

Q: Can a motel give its supplier a resale certificate for guest soap and paper goods?
A: No. The motel doesn't resell these items as such or as a component of property it sells, and it doesn't use them to perform a taxable § 1105(c) service, so the § 1101(b)(4) resale exclusion doesn't apply and a resale certificate would be improper.

Q: Doesn't the guest ultimately pay for the soap through the room rate?
A: Practically yes, but legally the room charge is taxed as occupancy under § 1105(e), not as a sale of the supplies. That doesn't convert the motel's purchase of the supplies into a tax-free resale.

Q: Do the production/manufacturing exemptions ever help a hotel?
A: Not for guest supplies. Those exemptions require producing tangible personal property (or gas, electricity, refrigeration or steam) for sale, which a motel does not do.

Citations and references

Statutes, regulations and authority:

• Tax Law § 1105(a) — imposes sales tax on receipts from every retail sale of tangible personal property
• Tax Law § 1101(b)(4) — defines "retail sale" and excludes purchases for resale as such, as a physical component, or for use in performing certain § 1105(c) services
• Tax Law § 1105(e) — taxes charges for hotel/motel room occupancy
• 20 NYCRR 527.9(i)(2) — a hotel's purchases of soap, paper products and other operating supplies are subject to tax

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1981.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/h81_122s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-H-81(122)S
Sales Tax
June 24,1981

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S810323C

On March 23, 1981, a Petition for Advisory Opinion was submitted by Lanz's
Motel, Inc., R.D. #1-Box 73, Clayton, New York 13624.
The issue raised is whether Petitioner's purchases of items such as plastic
or paper cups, bathroom tissue and guest soap which are placed in motel rooms for
the use of guests are subject to sales tax. Petitioner states that these items
are "re-sold" to guests because the cost of these items are included in the
amounts charged for the rooms. Petitioner also suggests that these items should
be considered material used in the production of a salable item and, therefore,
exempt from sales tax.
Section 1105(a) of the Tax Law imposes a sales tax on the "...receipts from
every retail sale of tangible personal property, except as otherwise provided in
this article."
Section 1101(b)(4) of the Tax Law defines the term "retail sale", in
relevant 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, or (B) for use ... in performing the services subject
to tax under paragraphs (1), (2), (3) and (5) of subdivision (c) of section
eleven hundred five ..." Petitioner's charges to guests are charges for the
rental of motel rooms, taxable pursuant to 1105(e) of the Tax Law. Petitioner
does not sell the items in question as such, nor as a physical component part of
tangible personal property, nor does Petitioner use these items to perform any
of the services taxed pursuant to Section 1105(c) of the Tax Law. Therefore,
Petitioners' purchases are not excluded from taxation as purchases for resale.
This conclusion is in accord with section 527.9(i)(2) of the Sales and Use Tax
Regulations, which specifically states that purchases by a hotel of soap, paper
products and other supplies used in the operation of a hotel are subject to tax.
20 NYCRR 527.9(i)(2).
Several sections of the Tax Law provide exemptions from tax with respect
to sales of various items used in production, but all require the production of
either tangible personal property or gas, electricity, refrigeration or steam for
sale. Petitioner is not engaged in the production of any of the above.
Accordingly, its purchases of the items in question do not qualify for exemption
as purchases for use in production.

DATED: June 9,1981

TP-8 (4/80)

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau

JAMES H. TULLY, JR., COMMISSIONER
LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR