How does Texas tax hotel amenities, upgraded-package charges, and bundled room-and-meal (American Plan) pricing — hotel occupancy tax, sales tax, or both?

Plain-English summary

This letter first corrects a citation error in an earlier March 12, 1997 ruling to the same taxpayer: the correct Texas Alcoholic Beverage Code cite for mixed beverage gross receipts is § 183.021, not § 202.02, which was repealed in 1994. The rest of the earlier letter — a five-scenario analysis of hotel/motel tax treatment, restated here for a national tax group presentation — stands unchanged.

Complimentary guest-room supplies (soap, shampoo, lotion, mouthwash, laundry bags, tissue, stationery, etc.) furnished to guests without a separate charge are taxable to the hotel at the time of purchase — and the same goes for similar items placed in public-accessible areas like a bar or restaurant restroom.

Upgraded packages (a larger room, business machines, breakfast, cocktails) bundled into an extra flat charge on top of the base room rate are entirely taxable as part of the hotel room rental (hotel occupancy tax) — but if the hotel breaks the upgrade into individually itemized charges (e.g., "$5 breakfast," "$10 laptop use"), those itemized charges become subject to sales tax instead of hotel occupancy tax.

American Plan bundling (one price covering room, food, and service) turns entirely on whether meals are separately stated: if the bill doesn't separate a meal charge from the room charge, hotel occupancy tax applies to the entire lump sum. If meals ARE separately stated (the letter's example: $90 room / $10 food on the guest folio), only the room portion is subject to hotel occupancy tax, while the meal portion is subject to sales tax — except that any of that $10 attributable to alcoholic beverages taxable under Alcoholic Beverage Code § 183.021 is not also subject to sales tax (avoiding double taxation).

Truly complimentary meals (no separate charge on the folio, no internal revenue tracking, and nothing refunded if a guest skips the meal) are treated as incidental to the room rental — the entire room charge is subject to hotel occupancy tax, the meals aren't considered "resold" to the guest, and the hotel can't buy the underlying food/beverage items tax-free.

What this means for you

Hotel and motel operators

Whether a bundled charge is hotel occupancy tax or sales tax often comes down to a single choice: itemize it, or don't. Separately stating meal or amenity charges shifts that portion from hotel occupancy tax to sales tax (and lets you avoid hotel occupancy tax on it), while lump-summing keeps the whole thing under hotel occupancy tax. Either way, complimentary in-room supplies are simply taxable to you at purchase, with no path to pass that tax through as "resold" to the guest.

Accountants and tax professionals advising hospitality clients

Track how your hotel client structures American Plan or upgrade-package pricing — the Comptroller's answer to nearly identical fact patterns flips entirely on the presence (or absence) of a separately stated charge, and alcoholic beverage receipts get their own carve-out from sales tax under § 183.021 to avoid double taxation with the Alcoholic Beverage Code.

Common questions

Q: Are complimentary toiletries and other guest-room supplies taxable to the hotel?
A: Yes, at the time the hotel purchases them, regardless of whether they're in guest rooms or public areas.

Q: If a hotel charges $20 more per night for an upgraded package, is that taxable?
A: Yes, as part of the room rental (hotel occupancy tax) — unless the hotel itemizes the components separately, which shifts those items to sales tax instead.

Q: Under the American Plan, does the whole bundled room-and-meal price get hotel occupancy tax?
A: Only if meals aren't separately stated. If separately stated, the meal portion is sales tax instead (with alcoholic beverages carved out under § 183.021).

Q: What about truly complimentary meals with no separate charge at all?
A: The whole charge stays under hotel occupancy tax as part of the room rental, and the hotel can't buy the food/beverage tax-free since it isn't "resold" to the guest.

Q: Can another hotel rely on this exact letter?
A: No. This is a Texas STAR letter ruling binding on the Comptroller only for the taxpayer it addresses (34 Tex. Admin. Code Rules 3.1, 3.10); confirm your own facts with a tax professional.

Citations and references

Rules and statutes:

• 34 Tex. Admin. Code § 3.293 (food sales)
• Tex. Alco. Bev. Code § 183.021 (mixed beverage gross receipts tax — corrected cite; § 202.02 was repealed in 1994)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9709284L

Original ruling text

September 16, 1997

Dear *:

This is to correct my March 12, 1997, response to your request for a sales and use tax ruling on various items purchased by hotel/motel operators. The correction relates to my response to question #4, regarding the cite for the applicable Texas Alcoholic Beverage Code section. The correct cite is section 183.021 rather than section 202.02, which was repealed in 1994. The remainder of my letter is unchanged.

You will be making a presentation to a national tax group and were seeking information regarding the application of sales or use tax to hotels and motels in Texas. Your fact situation and questions are restated below followed by my response:

Today's business environment demands that hotel/motel operators offer, in addition to accommodations, various amenities and promotions to attract guests. In addition to the traditional soap and shampoo, hotels offer larger rooms; use of computers, printers, fax machines and copying equipment; food and beverage service. These and other items are provided to guests as part of the charge for the room, for an additional charge or on a complimentary basis.

I ask you to please review each item listed below considering the sales and use tax implications of each.

1. What is the application of tax on purchases of soap, shampoo, lotion, mouthwash, laundry bags, facial tissue, bathroom tissue, stationery and other similar items furnished without additional charge to and intended to be consumed by guests during their stay?

Response: Soap, bathroom tissue, facial tissue, lotion, post cards, guest stationary, etc. which are placed in hotel/motel rooms for the convenience of the guests are taxable to the hotel/motel at time of purchase. Similar items placed in areas accessible to the general public (i.e., the hotel bar or restaurant rest rooms) are also taxable.

2. Some hotels offer the guest a larger room, deluxe amenities, use of business machines, a morning continental breakfast and evening cocktails and snacks for a charge in addition to the regular room rate. For example, this upgraded package might be offered for $20.00 more per room night and entitle the guest to these additional services most likely on a special floor or part of the hotel. What is the application of tax in this situation?

Response: The $20.00 charge would be taxable as part of the rental of the hotel/motel room. If the charge is broken out individually, i.e., $5.00 for breakfast, $10.00 for the use of a laptop computer, etc. these charges would be subject to sales tax rather than hotel occupancy tax.

3. Many hotels offer food and beverage and furnish it as part of a packaged room rate. Room and meals are sold for a single price. As an illustration, a guest folio might list a single charge for "Room" of $100.00. The hotel's records however, would show that$90.00 was charged to a room revenue account and $10.00 to food or beverage revenue. In this situation, a normal business practice for the hotel would be to reduce the package rate by $10.00 for those guests that elect not to have food and beverage service. What, if any, are the tax consequences?

Response: This system is known as the American plan which is used by hotels, rooming houses, and the like where one price covers room, food, and service. If the American plan is used by hotels, boarding houses, or other places of business, the charge for meals must be separated from the charges for room or lodging. If the charges for meals and lodging are not separately stated on the bill to the customer, hotel occupancy tax must be collected on the entire charge. If the lump-sum charge is not subject to hotel occupancy tax, sales tax must be collected on the portion of the charge attributable to the meals. See enclosed Rule 3.293, concerning food sales.

4. Same as in #3, except the guest folio would itemize $90.00 and $10.00 respectively for room and meals.

Response: If the guest is invoiced $90.00 for room and $10.00 for food and beverages, only the $90.00 is subject to hotel occupancy tax, while the $10.00 would be subject to sales tax. To the extent that the receipts from the "beverages" are taxable under the Texas Alcoholic Beverage Code, sec. 183.021, those receipts would not be subject to sales tax.

5. Other hotels offer "complimentary meals" to their guests. These meals are provided as a promotion. There is no separate charge for food and beverage on the guest folio and the hotel's internal records reflect no revenue for meals. In addition, if guests elect not to have the food and beverage, an amount equal to the retail value of the food and beverage is never deducted from the room charge or refunded to the guest. What if any, are the tax consequences?

Note: Providing food, beverage and other special amenities to guests by hotel operators is in every instance incidental to the primary service of renting rooms to transients. Meals are generally restricted to breakfast and range from a simple continental breakfast consisting of coffee, juice and rolls to a full serve-your-self breakfast buffet. Evening beverage service is ordinarily beer and wine with some hotels offering a limited line of well liquor.

Response: The total room charge is subject to hotel occupancy tax. The meals are not considered resold to the guests because a separate charge is not made, therefore, taxable items provided to the guests as part of this "meal" may not be purchased tax free.

This opinion is based on the facts presented. Other facts though similar may provide a different result.

I hope this information answers your questions. If you need additional information, please call me toll-free at 1-800-531-5441, extension 3-4502. The direct line is 512/463-4502. You may also write to Tax Policy Division, Comptroller of Public Accounts. My Internet address is: [email protected].

Sincerely,

Gilbert Zamora

Tax Policy Division