When could an equipment rental company accept a resale certificate for tents, arches, and food-service equipment rented by caterers, planners, or other rental businesses?

Plain-English summary

Equipment rented for genuine re-rental was exempt when the retailer accepted a valid resale certificate in good faith.

A caterer was the consumer of food-preparation, serving, tent, and arch equipment used to provide catering and therefore paid tax on the rental. A separate rental company could issue a certificate for all equipment it truly re-rented.

For wedding consultants, party planners, event coordinators, florists, and similar customers, the rental company could accept a properly completed certificate when it had no reason to doubt the stated re-rental. The customer then had to collect tax when re-renting the equipment to the caterer.

Good faith did not require policing every customer, but the retailer could not ignore the type of business shown on the certificate or obvious facts inconsistent with re-rental.

Common questions

Could another rental company use a resale certificate? Yes.

Could a caterer do so for equipment it used? No.

Could a planner use one for a true re-rental? Yes, if the certificate was accepted in good faith.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8910L0968A12

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

October 31, 1989

Dear **:

I just want to take a minute to respond to your questions on the
taxability of certain items rented to customers who also provide a
properly completed resale certificate.

As you know, a rental for re-rental is not taxable. But, I'd also
like to point out that it is exempt only if the resale certificate
is accepted in good faith.

It is the retailer's responsibility to take notice of the type of
business generally engaged in by the customer as shown on the
resale certificate. Caterers must pay sales tax on all equipment
and supplies they use to provide the catering service.

We don't expect retailers to be policemen and question every
certificate they receive. If someone misleads one of your
members, the member will not be held liable if a properly
completed certificate was accepted. At the same time, retailers
can't close their eyes to reality, since the law says a
certificate must be accepted "in good faith."

With this in mind, your questions are restated with responses
below.

Question 1: A customer rents food preparation and serving
equipment, as well as a tent and wedding arch. Are the tent and
arch subject to sales tax.

Answer 1: If the customer is another rental company, then a
resale certificate can be issued on all equipment rented for re-
rental. The rental of food preparation equipment along with a
tent and arch, to a caterer would be taxable.

Question 2: A customer rents a tent and a wedding arch, are they
subject to sales tax?

Answer 2: If the rental company had no reason to doubt the
validity of the certificate, it should be accepted and no tax
should be charged to the customer.

Question 3: A customer rents food preparation and serving
equipment, but reports that another supplier will be preparing and
serving the food. Is the equipment subject to sales tax?

Answer 3: If the rental company had no reason to doubt the
validity of the certificate, it should be accepted and no tax
should be charged to the customer. The customer would then be
required to charge tax when he re-rented the equipment to the
caterer.

Question 4: Regardless of the type of business the customer is
primarily engaged in, if he rents food preparation and serving
equipment is he acting as a caterer? Wedding consultants, party
planners, event coordinators, florists, would all meet this
definition. Is it the preparation and serving that creates the
qualifying definition?

Answer 4: Caterers are persons engaged in the business of
preparing and serving meals, drinks, or other food products at
locations designated by a customer. Caterers are required to pay
tax on the items they use to perform their service because they
are considered to be the consumers of those items. Other service
providers are treated in the same way. For example, carpet
cleaners, doctors, and appliance repair persons are also required
to pay tax on their equipment at the time they buy or rent it.

If your members have specific questions, they should feel free to
call our tax assistance division. The number is toll-free, 1-800-
252-5555.

Sincerely,
Al Van Allen
Taxability Section
Legal Services Division