Can a caterer, hotel, or restaurant use a resale certificate to buy or rent tables, chairs, decorations, or audio-visual equipment used in providing food service, instead of paying tax on those items?

Subject

Event Planner/Catering Service — Equipment And Tpp Rented Or Purchased By Caterers (Tables/Chairs/Margarita Machine/Lights) — Used In Rendering Service — Resale/Exemption Certificate Not Allowed

Plain-English summary

A taxpayer wrote back to the Comptroller's office asking it to reconsider its policy on taxing audio-visual equipment provided by hotels in connection with food service. The Comptroller's Tax Policy Division declined to change the policy and restated it clearly.

Under the existing policy (in effect for several years at the time of this letter), a caterer that provides audio-visual equipment along with food service must collect tax on the entire charge to the customer and may not use a resale certificate for the tangible personal property it uses to provide that service. This is based on Sec. 151.007, Tex. Tax Code, which defines "sales price" to include services connected with the sale. So if a caterer rents tables, chairs, utensils, decorations, or audio-visual equipment, it cannot give the rental company a resale certificate, and it must charge its own customer tax on those items even if they're separately itemized on the bill.

Hotels and restaurants are treated the same as caterers: when they buy or rent equipment to use in providing food service, they must pay tax on that equipment themselves -- even though the overall charge to their customer is also taxed. The letter acknowledges this is "double taxation," but says that outcome is not unusual: many service providers pay tax on the items they use to perform a service and also must collect tax on the full price of that service, which itself includes the cost of those taxed items.

The letter traces this position back to a 1992 letter from the same office (which listed audio/visual equipment as an item the caterer must pay tax on and also collect tax on from the customer), an earlier hearings decision, and Comptroller's Decision No. 26,488, which followed the same reasoning. The writer had asked whether the hotel involved could either (a) use a resale certificate and separately bill the equipment and tax to the guest, or (b) pay the tax itself and not charge the guest tax on the equipment. The Comptroller refused to authorize either alternative: when a hotel doesn't separately charge for the room, or separately states room charges from food and drink charges, and it provides audio-visual equipment along with the refreshments, the hotel must pay tax on its purchase or rental of the equipment and charge its customer tax on the equipment charges. It doesn't matter whether the audio-visual charge is broken out separately on the banquet check -- the entire charge is taxable.

What this means for you

Caterers

If you rent or buy tables, chairs, utensils, decorations, or audio-visual equipment to use while providing food service, you cannot give your supplier a resale certificate for those items -- you owe tax on them as the end user. You must also collect tax from your own customer on the full charge for your services, including any separately stated equipment charges.

Hotels and restaurants

The same rule applies to you as to caterers. If you buy or rent equipment (such as audio-visual equipment) to use in connection with providing food service, you must pay tax on that equipment when you acquire it, and you must also charge your customer tax on the full amount billed for the event, including the equipment charge, even if it's itemized separately.

Accountants and tax professionals

This letter is a good example of the Comptroller treating "sales price" broadly under Sec. 151.007, Tex. Tax Code to include services connected with a taxable sale, which forecloses resale-certificate treatment for equipment used to render the service itself. Be aware this produces tax at two points in the transaction chain (on the caterer's/hotel's acquisition of the equipment, and again on the customer's bill) -- the letter openly calls this "double taxation" but confirms it is the Comptroller's settled position, consistent with Comptroller's Decision No. 26,488 and prior hearings decisions.

Common questions

Q: Can a caterer use a resale certificate to rent tables, chairs, or audio-visual equipment?
A: No. The caterer must pay tax on those items when renting or buying them, because they are used in rendering the caterer's service rather than being resold as such.

Q: If the caterer already paid tax on the rented equipment, does the customer still owe tax on it too?
A: Yes. The caterer must still collect tax from the customer on the entire charge, even if the equipment charge is separately stated on the bill. The letter acknowledges this results in tax being paid twice on the same equipment.

Q: Does it matter if a hotel separately states the room charge from the food and audio-visual equipment charge?
A: Not for the equipment. Where the hotel doesn't charge separately for the room (or separates the room charge from food/drink charges) and provides audio-visual equipment with the refreshments, the hotel owes tax on its own purchase or rental of the equipment and must also charge the customer tax on the equipment portion of the bill, whether or not that charge is broken out separately.

Q: Are hotels and restaurants treated differently from caterers for this purpose?
A: No. The letter states hotels and restaurants are treated the same as caterers when they buy or rent equipment used in connection with providing food service.

Citations and references

Statutes and rules:

• Sec. 151.007, Tex. Tax Code (definition of "sales price" includes services connected with the sale)

Prior Comptroller authority referenced in the letter:

• A 1992 letter from the same office addressing audio/visual equipment
• An earlier hearings decision
• Comptroller's Decision No. 26,488

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9609L1428G01

Original ruling text

September 4, 1996

Dear **:

Last month, you wrote asking that I reexamine the issue of
taxation of audio visual equipment provided by hotels. Under our existing
policy, which has been in effect for several years, a caterer that is providing
audio visual equipment in connection with the provision of food services must
collect tax on the entire charge to the customer and may not give a resale
certificate in connection with tangible property used in providing the service.
The basis for this rule is Sec. 151.007, Tex. Tax Code which defines the sales
price to include services in connection with the sale. Therefore, if the
caterer rents tables, chairs, utensils, decorations, and audio visual
equipment, the caterer may not give a resale certificate for the items rented
and must charge tax on the items even if separately set out to the customer.

Hotels and restaurants are treated the same as caterers.
When hotels and restaurants buy or rent equipment used by them in connection
with the providing of food service, they must pay tax on the items purchased
even though the overall charge to the customer is likewise subject to tax. In
your letter, you point out that this is double taxation. It is, but there are
many instances where service providers pay tax on the items they use in
providing services and must collect tax on the full price of the service which
includes tax on these items.

In my 1992 letter, audio/ visual equipment was listed as an
item on which tax must be paid by the caterer and on which the caterer must
collect tax from the customer. This letter was in accordance with an earlier
hearings decision. Subsequently, Comptroller's Decision No. 26,488 followed
this same line of reasoning as did my letter to *** last year.

In your letter you asked that HOTEL be allowed to either give
a resale certificate and separately bill the item and sales tax to the hotel
guest, or pay the sales tax and not charge the guest tax on the equipment. I
cannot authorize you to do either. When the hotel does not charge for the room
or separately states the charges for the room from the charges food and drinks
and provides audio visual equipment in connection with the refreshments, the
hotel must pay tax on the purchase or rental of the equipment and subsequently
also charge tax to the customer on any charges for the audio/visual equipment.
It is immaterial whether the audio/visual equipment is separately set out on
the banquet check as the entire charge is taxable.

I realize this seems unfair to you. However, our policy is
in accordance with existing hearings decisions, and I believe it should be
followed. Should you have any further questions, please feel free to write me
at 111 E. 17th Street, Austin, Texas 78774, or call me at 1-800-531-5441,
extension 3-4004.

Sincerely,

Wade Anderson
Director, Tax Policy

NOTE: Previous Accession Number 9609513L