Does a motel's hotel occupancy tax reporting (showing how many room-nights were long-term stays) have to match, or can it be used to second-guess, the motel's separate claim that over 50% of its gas/electricity usage is residential for sales tax exemption purposes?

Plain-English summary

A motel, through an agent, submitted a sales tax exemption certificate claiming that a "valid and completed study" showed more than 50% of its natural gas and/or electricity usage over three years was residential. A utility representative asked the Comptroller whether the residential-utility-exemption determination should be treated the same as the residential exemption under the hotel occupancy tax on room rentals -- and specifically requested the motel's hotel occupancy tax data to compare against the utility exemption percentages the motel claimed. The two data sets turned out to be very inconsistent, and the utility asked whether that inconsistency meant the motel's hotel tax reports (regarding rooms rented 30+ consecutive days) should be corrected.

The Comptroller explained the two exemptions are governed by different statutes and don't need to match. Under § 151.054(c), a seller (here, the utility) is relieved of tax liability on a taxable item if it accepts an exemption certificate in good faith -- meaning it has no reason to question the purchaser's claim and the certificate is valid on its face -- and the Comptroller has no authority to compel a seller to accept or reject a certificate. Substantively, the residential utility exemption is governed by the sales and use tax law (Chapter 151) and turns on the predominant use of the gas/electricity itself, not on the hotel occupancy tax law's (Chapter 156) measure of predominant occupancy (guests who initially contract for 30+ consecutive days). Hotel occupancy tax reports, while a reasonable indicator that the operator properly collected and remitted occupancy taxes, are not a true measure of actual utility usage by overnight guests versus longer-term residents -- so a discrepancy between the two doesn't by itself disprove the utility exemption. The Comptroller enclosed a copy of Hearing No. 33,122 (1996) for further reference on the same issue.

What this means for you

Hotel and motel operators claiming a residential utility exemption

Your utility exemption claim rests on a separate, use-based study of the gas/electricity itself -- not on how your hotel occupancy tax reports characterize guest stays. Keep the two data sets and their underlying methodologies distinct; a mismatch between them isn't automatically disqualifying for either exemption.

Utility companies serving hotels/motels

You're protected from tax liability if you accept a customer's exemption certificate in good faith, with no obligation to independently verify it against unrelated tax filings like hotel occupancy tax reports -- and the Comptroller cannot force you to accept or reject a certificate either way.

Accountants and tax professionals

This letter is a good illustration of why measures used for one Texas tax (hotel occupancy tax's occupancy-duration test) shouldn't be assumed to control a differently-defined exemption test under another tax (sales tax's utility predominant-use test), even when both concern the same taxpayer and property.

Common questions

Q: Does a motel's hotel occupancy tax reporting have to match its residential utility exemption claim?
A: No, per this letter -- they're governed by different statutes measuring different things (room occupancy duration vs. actual utility use).

Q: What test governs the residential utility exemption?
A: Predominant USE of the gas/electricity, per Chapter 151 (sales tax law), not predominant occupancy under Chapter 156 (hotel occupancy tax law).

Q: Is a utility company required to independently verify a customer's exemption certificate against other tax filings?
A: No, per this letter -- a seller accepting a certificate in good faith, with no reason to question its validity, is relieved of tax liability under § 151.054(c).

Citations and references

Statutes:

• Tex. Tax Code § 151.054(c) (good-faith exemption certificate relieves seller of tax liability)
• Tex. Tax Code Chapter 151 (limited sales and use tax -- governs the residential utility predominant-use exemption)
• Tex. Tax Code Chapter 156 (hotel occupancy tax -- a separate, non-parallel exemption scheme)

Prior decision referenced in this letter:

• Hearing No. 33,122 (1996)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9707582L

Original ruling text

July 22, 1997

Dear ***:

Thank you for your letter of July 15, 1997, concerning the request for an
exemption and refund of sales tax paid by a motel claiming predominant
residential use of utilities (natural gas and/or electricity).

Through an agent, the motel (utility customer) submitted an exemption
certificate claiming that for three years a "valid and completed study"
indicates over 50% of the utilities were for residential use. As you
understand it, the determination of "residential exemption" from sales tax paid
on utilities is the same as the residential exemption from hotel/motel tax
collected on rental receipts. You therefore requested hotel/motel tax
information on this customer from the comptroller's office to compare hotel tax
reports to the percents the customer gave on the sales tax exemption form.
They are not consistent, in fact very far from it.

What you need to know is if your reasoning is correct and that if in fact this
hotel owner is renting out rooms for stays in excess of 30 days more than 50%
of the time, should this be reflected in his hotel tax reports to the State of
Texas?

Response: Texas Tax Code Section 151.054(c) relieves the seller of the tax
liability for a taxable item sold if the seller accepts an exemption
certificate in good faith from the purchaser. Good faith simply means the
seller has no reason to question the validity of the purchaser's claim and the
certificate is valid on its face. The sales tax law does not give the
comptroller the authority to compel the seller to accept the certificate.

The exemption provided under the hotel occupancy tax law (Texas Tax Code
Chapter 156) does not necessarily parallel the exemption provided for utilities
under the limited sales and use tax law (Texas Tax Code Chapter 151). The
statute that governs the taxation of residential utilities is the sales tax
law. This law is based on predominant use of the utility(ies), not predominant
occupancy hotel or motel rooms. The hotel occupancy tax reports, while not a
true indicator of utility usage by overnight guests and residents (those
contracting initially for a room for more than 29 consecutive days), allows a
reasonable assumption that the hotel owner properly collected and remitted
hotel occupancy taxes that were collected from customers.

I am enclosing an edited copy of Hearing No. 33,122 (1996) for reference.

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

You may call me toll free 1-800-531-5441, extension 3-4683. The direct line is
512/463-4683. You may also write to Tax Policy Division, Comptroller of Public
Accounts.

Sincerely,

Eddie C. Washington
Tax Policy Division

Enclosure