Could a seller accept a hotel's resale certificate for linens when the permit number was invalid and hotels ordinarily used rather than re-rented linens?

Plain-English summary

The hotel's resale certificate was invalid. The hotel did not have an active Texas sales or use tax permit, and the number on the certificate was not valid for Texas. The letter also said a resale certificate needed a valid permit number and a description of the items bought for resale.

Hotels ordinarily use linens in providing guest services rather than re-renting them. Although a seller could accept a certificate in good faith when it lacked actual knowledge that the sale was not for resale, the seller had to take notice of the purchaser's usual type of business as shown on the certificate.

What this means for you

The historical letter required more than possession of a form. Sellers had to check basic certificate completeness and could not ignore a resale claim inconsistent with the purchaser's ordinary business.

Common questions

Was the hotel's certificate valid? No.

What was mechanically wrong? It lacked a valid Texas permit number, and the letter required a description of the items purchased for resale.

Why did the hotel's business matter? Hotels ordinarily used linens in guest services rather than re-renting them.

Could good faith protect a seller? Only if the certificate could be accepted in good faith and the seller lacked actual knowledge that the transaction was not for resale.

Citations and references

• No statute or rule number is cited in the ruling text.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8710L0843C01

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

Bob Bullock
Comptroller October 29, 1987

Dear **:

Thank you for your letter concerning a resale certificate issued to
you by
** Hotels Corporation of New York.

The resale certificate is not valid. ** Hotels does not have
an active sales or use tax permit for Texas.

A resale certificate must have a valid permit number and a
description of the
type of items purchased for resale. The number appearing on the
certificate
is not valid for Texas.

Also, hotels do not ordinarily re-rent linens in the regular course
of
business. Rather hotels use linens as part of the services which
are
provided to guests. A sale is exempt if the resale certificate can
be
accepted in good faith and the seller lacks actual knowledge that
the sale is
not a sale for resale. It is the seller's responsibility to take
notice of
the type of business generally engaged in by the purchaser as shown
on the
resale certificate.

This opinion is based on the facts presented. If there are
additional or
different facts, the opinion may change.

If you have any questions or need more information, please call me
at
1-800-252-5555 toll free from anywhere in Texas. The regular
number is
512/463-4600. you may write me at the Tax Policy Division.

Sincerely,
Julie Pesl
Tax Policy Division