When a hotel — building, land, and all its furnishings (artwork, silverware, linens) — is sold for one lump-sum price and then immediately leased back out as a hotel for a single lease amount, is any of that subject to Texas sales tax? What about tangible property a partner trades with the partnership before the sale closes?

Plain-English summary

A partnership owned a Texas hotel and planned to sell it, land and all, together with all the tangible personal property used to run it (artwork, silverware, linens), for a single lump-sum price. Right after buying it, the purchaser planned to lease the entire package back out to another operator for a single lease amount that wouldn't separate real property from the furnishings — with the lessee continuing to run it as a hotel.

The Comptroller treated both transactions as sales/leases of real property, not taxable sales of tangible personal property. The transfer of the furnishings and equipment was viewed as incidental to the sale of the realty, so it didn't trigger sales tax, and the same reasoning carried over to the lump-sum leaseback. The letter also noted the sale might independently qualify for the "sale of a business or identifiable segment" exemption under Rule 3.316(d) — an alternate path to the same tax-free result.

A second scenario in the letter involved a separate wrinkle: before the sale to the purchaser closed, the partnership might transfer some of the hotel's tangible personal property to one of its own partners — either for free or in a straight trade for similar property the partner would give back for use in the hotel. The Comptroller said the main hotel sale stays nontaxable real property either way, but this side transaction is its own taxable event: if the partner pays consideration, sales tax is due on that amount; if it's a straight trade of tangible personal property, it's a taxable barter transaction under Rule 3.283(c)'s bartering-clubs-and-exchanges rule.

What this means for you

Buyers and sellers of hotels, restaurants, or other operating businesses sold as a package

Selling real property together with the furnishings, fixtures, and equipment used to run it, for one lump-sum price, is generally treated as a real property transaction — the personal property is incidental and doesn't create sales tax exposure. The same treatment can extend to an immediate single-amount leaseback. Structuring the deal as a lump sum (not itemized) supports this treatment; separately stating a price for the tangible personal property could change the analysis.

Partnerships trading equipment or supplies with their own partners

Don't assume that because your main sale (a business or real estate deal) is tax-free, side transactions moving tangible personal property to a partner are automatically covered too. A straight trade of property between the partnership and a partner is a taxable barter transaction in its own right, and a transfer for cash is a straightforward taxable sale — evaluate these separately from the main deal.

Accountants and tax professionals

This letter shows two distinct doctrines applied side by side: the incidental-personal-property-in-a-realty-sale rule (plus the alternate sale-of-a-business exemption in Rule 3.316(d)), and the barter/exchange rule in Rule 3.283(c) for property trades that don't involve cash. Watch for pre-closing property shuffles between related parties — they don't automatically inherit the main deal's tax-free status.

Common questions

Q: Is selling a hotel's furnishings along with the real estate, for one lump-sum price, subject to sales tax?
A: No. When sold together with the realty for a single price, the tangible personal property is treated as incidental to the real property sale and is not taxable.

Q: What about immediately leasing the whole package back out for a single lease amount?
A: Also treated as a lease of realty and not subject to sales or use tax, on the facts presented.

Q: We're trading equipment with one of our partners before the sale closes — is that taxable?
A: Yes. Whether it's for cash consideration or a straight trade of similar property, that transaction is taxable — either as a regular sale (tax on the consideration paid) or as a barter transaction under Rule 3.283(c).

Q: Can I rely on this letter for my own hotel or business sale?
A: No. This opinion is based on the facts presented, and other facts, though similar, may provide a different result; it binds the Comptroller only as to the taxpayer it was issued to.

Citations and references

• 34 Tex. Admin. Code Rule 3.316(d) (alternate exemption: sale of a business or identifiable segment of a business)
• 34 Tex. Admin. Code Rule 3.283(c) (bartering clubs and exchanges)

Subject

Barter/Bartering/Trading Or Exchanging Items

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9712368L

Original ruling text

December 22, 1997

Dear Mr. **:

This is in response to your request for a ruling regarding the applicability of
Texas sales and use tax to the following transactions:

1. Partnership A owns a hotel located in Texas that has been operated as a
   hotel for several years. Purchaser plans to purchase from Partnership A for a
   lump sum price the hotel, land and building and all of the tangible personal
   property that is in the hotel and has been used in the operation of the hotel,
   including items such as artwork, silverware and linens ("Property").
   Immediately after purchasing the Property, Purchaser plans to lease the
   Property to another party for a lease amount that will not be separated between
   the realty and tangible personal property. The lessee will continue to operate
   the Property as a hotel.

Response: For sales tax purposes, the initial sales transaction is viewed as a
contract for the sale of real property. The transfer of the tangible personal
property is considered incidental to the sale of the realty and is not taxable.
The subsequent lease of the Property to another party for a single amount is
considered the lease of realty and is not subject to sales or use tax.
Alternatively, the sale of the hotel may qualify for exemption under Rule
3.316(d) as the sale of a business or an identifiable segment of a business.

2. It is also possible that Partnership A will transfer certain tangible
   personal property that has been used in the Hotel to one of its partners prior
   to closing of the sale of the hotel to the Purchaser, either (i) for no
   consideration or (ii) in return for tangible personal property of the same type
   as that being transferred to the partner. The tangible personal property, if
   any, transferred by the partner to Partnership A will be used in the operation
   of the hotel prior to closing of the sale to the Purchaser.

Response: The sale of the hotel will still be viewed as a nontaxable sale of
realty under this situation. Sales tax will be due on the consideration paid
by the partner for the tangible personal property or on the barter transaction
between the partner the hotel. See subsection (c) of Rule 3.283, Bartering
Clubs and Exchanges.

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. You may also e-mail our tax help section at:

Sincerely,

Gilbert Zamora
Tax Policy Division