Texas Letter Ruling 9211L1199G12: Hotel — Trunk Lines Purchased For Own Use And For Resale To Guests — Resale Certificate Guidelines

Plain-English summary

This is a short internal Texas Comptroller memo, dated November 2, 1992, from Al Van Allen (via Larry Koenig) to Jonnie Davenport, addressing a hotel's telecommunication resale question referred to as "TR Management."

A hotel buys a trunk line to get telecommunication service, and resells part of that service to its hotel guests. The memo concludes the hotel may not give its telecommunication service provider a resale certificate to buy the basic local exchange telephone service tax-free. Instead, the hotel may take a credit on its own sales tax return, but only if it can document what percentage of the basic local exchange service it actually resold to guests.

The memo also addresses process: the writer is returning the subject documents, notes that documentation requirements for taxpayers should be worked out with the Audit Division, mentions that an auditor (Chris Hollifield of Dallas West Audit) had already audited hotels selling telecommunication service and could be consulted, and clarifies that Tax Administration can help with policy questions but cannot decide what data or schedules the Revenue Accounting Division will accept to approve or deny a refund request. A copy of "fiche 1185b08" is enclosed for the recipient's file.

What this means for you

Hotel owners and operators

If your hotel buys a trunk line for telephone service and resells a portion of that service to guests (for example, through in-room phone charges), you cannot hand your telecommunications provider a resale certificate to purchase the basic local exchange service tax-free. You still pay tax on that purchase up front. To recover tax on the portion you resell to guests, you need to document what percentage of the basic local exchange service was actually resold, and then claim a credit for that documented amount on your own sales tax return.

Accountants and tax professionals

The distinguishing point in this memo is the mechanism: no resale certificate at the point of purchase, but a credit on the taxpayer's own return conditioned on documentation of the resold percentage. The memo notes that the specific documentation requirements taxpayers must furnish were to be worked out between the requesting section and the Audit Division, and that Audit Division (specifically an auditor in Dallas West Audit) already had experience auditing hotels selling telecommunication service. The memo does not specify what documentation standard was ultimately required.

Business owners considering refund claims

The memo notes that Tax Administration can assist with policy questions but does not decide what data or schedules the Revenue Accounting Division will accept to approve or deny a refund request. If you're pursuing a refund on this basis, expect that acceptable documentation is a Revenue Accounting Division / Audit Division determination, not a Tax Administration one.

Common questions

Q: Can a hotel give its phone company a resale certificate to avoid paying tax on trunk line service it partly resells to guests?
A: No. The memo states the hotel may not give its telecommunication service provider a resale certificate for purchase of the basic local exchange telephone service.

Q: If a resale certificate isn't allowed, how does the hotel avoid double taxation on the resold portion?
A: The hotel may take a credit on its own sales tax return, but only if it can document the percentage of the basic local exchange service that it sold to its guests.

Q: Who decides what documentation is acceptable to support that credit or a related refund claim?
A: The memo says the documentation requirements should be worked out with the Audit Division, and separately notes that Tax Administration is not in a position to decide what data or schedules the Revenue Accounting Division will accept to approve or disapprove a refund request.

Q: Does the memo cite any statutes or rules for this conclusion?
A: No. As transcribed, this internal memo states the conclusion and administrative next steps without citing a specific statute, rule, or prior ruling.

Citations and references

No statutes, rules, or other authorities are cited in the original text of this letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9211L1199G12

Original ruling text

Date: November 2, 1992

To: JONNIE DAVENPORT

From: Al Van Allen
VIA Larry Koenig

Re: TR Management - ***

A hotel that buys a trunk line to obtain telecommunication service and
that resells a portion of that service to its guests may not give their
telecommunication service provider a resale certificate for purchase of
the basic local exchange telephone service. However, the hotel may take
credit on its sales tax return if it can document a percentage of the
basic local exchange service it sold to its guests.

I am returning the subject documents with this memo.

The Documentation requirements that your section will require taxpayers
to furnish should be worked out with Audit Division. I am told that Chris
Hollifield of Dallas West Audit has done some audits on hotels selling
telecommunication service, so you may want to talk to him.

Tax Administration will be happy to assist you with policy issues but is
not in a position to make decisions as to what data or schedules Revenue
Accounting Division will accept in order to approve or disapprove a refund
request.

I am enclosing a copy of fiche 1185b08 for your file.