### T E X A S C O U R T O F A P P E A L S , T H I R D D I S T R I C T , A T A U S T I N

NO. 03-10-00801- CV

DTWC Corporat ion, App ellant

v. Sus an Com bs, Com ptroller of P ubl ic Acc ounts of The State of Texas, and Gr eg Abbott, Attor ney Ge neral of the State of Texas, App ellees

F ROM TH E DISTRI CT COURT O F TRAVIS CO UNTY, 250 TH JUDICI AL DISTRICT NO. D-1 -GN-0 6-0 0426 7, H ONO RAB LE RHO NDA HURLEY , JUDGE P RESIDING

O P I N I O N

DTWC Corporation broug ht this tax-refu n d suit ag ainst the Comptroller of Public Acc ounts seeki n g t o re coup sales taxes it paid on items such as soap, shampoo, conditioner, mouthwash, shower

caps, pe ns, and notepa ds that it put in its hotel rooms for its hotel g uests. On

cross motions for summary judgme nt, the district court deter mined that the hotel consumables wer e not exempt from sales tax under the tax code’ s sale-f or-r esale exemption. We disag ree and reve rse the district court’s judg ment.

BACK GR OUND

The fac ts are undisputed, having been established below in a stipulation of fac ts. Appellant DTWC Corporation is the succe ssor-in-intere st to Red L ion Hotels, I nc., which operated

a hotel in Austin, Texas during the tax period at issue in this case . Red L ion char g ed eac h of its hotel g uests a set fee for overnig ht lodging

. The overnig ht-lo d gi n g fe e, which was subject to state andlocal hotel-occ upancy taxes, wa s based on fac tors such as the date of occupa ncy , the quality of the hotel proper

ty , the level of service provided, a nd the amenities available a t the hotel. I n exchang e for the overnig ht-lodg ing fee , a R ed L ion g uest was given use of a hotel ro o m and acce ss to hotel fac iliti es such a s a pool or exerc ise room.

Red L ion stocked its hotel rooms with soaps, shampoos, conditioners, mouthwashes, shower caps, pens, notepads, and other simil ar non-re usable, consumable ite m s (“hote l consumables” ) for use by its hotel g uests. Be fore putting these items in the g uest rooms, Red L ion stored the hotel consumables in a locked are a on its hotel proper ty

. The hotel g uests wer e fre e to use the hotel consumables in their rooms as they saw fit, including using the items, not using the items,

or taking the items with them when they left the hotel. Guests who did not wa n t o r u s e t h e hotel consumables wer e not offe red and did not rec ei ve a reduc ed rate for fore g oing the use of those consumables. After a gu es t ch ec k ed out of the hotel, Red L ion would repla ce for the next g uest

1 those hotel consumables tha t had bee n taken or used by the prior g uest. DTWC soug ht a ref

und of the $17,485.53 in sales t ax i t paid on the hotel consumables it boug ht during the period Dec ember 1, 1998 throug h Marc h 31, 2002, arguing that th e hotel consumables wer e exempt under the tax code’ s sale-f or-r esale exemption. Th e Co mp tr o ll e r disputed that the exemption applied. I n the district court, the parties filed cross motions for summary judgme nt on the issue of whether the sale-f or-r esale exemption applies to hotel consumables. The district court g rante d the Comptroller’s summary -judg ment motion and denied DTWC’s. I t is from this judgme nt that DTWC now appea ls, asser ting as its sole issue on appea l that it is ent i tled to a

DTWC asserts that the cost of the hote l consumables is fac tored int o the room rate , thus 1 settling, at least on this rec ord, the dilemma of whether it is okay to take these items home with y ou when y ou chec k out of y our hotel room. 2ref

und of the sales tax it paid on the purcha ses of the hotel consumables under a proper construction of the tax code’s sa le-for -re sale e x emption.

STANDARD OF REVIEW Summary judgme nt is proper if the movant establishes that there is no g enuine issue of m ater ial fac t and that it is entitl ed to judgme nt as a matter of law. See Tex. R. Civ. P. 166a(c ); Southwestern Elec. Power Co. v. Grant , 73 S.W

. 3 d 211, 215 (Tex. 2002). I n our de novo revie w of a summ ary judgme nt, we indulge ever y rea sonable infere nce and resolve any doubts in the nonmovant’s favor

. Id

. When both parties move for summary judgme nt and the district court g rants

one motion and denies the other, we revie w the summary -judg ment evidenc e prese nted by both sides, deter

mine all questions prese nted, and rende r the judgm en t t h at the trial court should have rende red. Texas W

orkers’ Comp. Comm’n v. Patient Advoc ates , 136 S.W .3d 643, 648 (Tex. 2004).

DISCUSSIO N Be cause the basic fac ts of this case are not in dispute, our decision turns on the interplay of var ious provisions found in chapter 151 of the tax code.

• Sales tax : Section 151.051(a) imposes a sales tax “on eac h sale of a taxable item in this state.” Tex. Tax Code Ann. § 151.051(a) (West 2008). “‘Ta x able item’ means tang ib le persona l proper

ty and taxable service s.” Id. § 151.010 (West 2008). The hotel consumables are “tang ible persona l prop er t y , ” a term that captur es “per sonal proper ty that can be seen, weig hed, measure d, felt, or touched or that is perc eptible to the senses in any other manner .” See id. § 151.009 (West 2008).

• Sale-for-re sale exem ption: Provisions found in subchapte r H set out numerous exemptions to the sales and use taxes imposed by chapte r 151. Section 151.302(a) states: “The sale for resa le of a tax ab l e item is exempted from the taxes imposed by this chapte r.” Id. § 151.302(a)

. A “sale for resa le” includes a sale of “tangible persona l

. . . proper ty to a purcha ser wh o ac q u i re s the proper ty

. . . for the purpose of rese lling it

. . . in the normal course of business in the form or condition in which it is acquir ed.” Id. § 151.006(a) (1) 3(West Supp. 2012). “Sale” and “pur chase ” ar e def ined as, among other thi ng s, “a transfe r of title or possession of tang ible persona l proper ty ” when “done or perf ormed for consideration.” See id . § 151.005(1) ( West 2008).

Statuto ry co n s t ru ction is a question of law that we revie w de novo. See State v. Shumake , 199 S.W .3d 279, 284 (Tex. 2006). Our primary object i v e in construing statutes is to g ive eff ect to the L eg islature’s i n t en t an d, ordinarily , the truest manifestation of what lawmake rs intended is what they enac ted. See First Am. Titl e Inc. Co. v. Combs , 258 S.W .3d 627, 632 (Tex. 2008). The lang uag e emer g ing from the leg islative proce ss “constitutes the law, and when a statute’s words are unambig uous and y ield but one interpre tation, ‘the judge ’s inquiry is at an end.’” Combs v. Roark Am useme nt & Vending, L.P. , __S.W .3d__, No. 11-0261, 2013 WL 855737, at *2 (Tex. Mar. 8, 2013) (quoting Alex Sheshunoff Mgm t

. S er vs . , L.P. v. Johnson , 209 S.W .3d 644, 651–52 (Tex. 2006)). We g ive such unambig uous statutes their plain meaning without resor ting to rules of construction or extrinsi c aids. Id. (citing Texas Lottery Comm’n v. First S t a t e Bank of DeQue en , 325 S.W .3d 628, 635, 637 (Tex

. 2010) (bra nding such relianc e “improper ,” beca use “[w]hen a statute’s lang uag e is clea r and unambig uous, it is inappropria te to resor t to rules of construction or extrinsi c aids to construe the lang uag e” (citing City of Rock wall v. Hughes , 246 S.W .3d 621, 626 (Tex. 2008))). O n the other hand, “‘[i] f a statute is va g ue or ambig uous, we defe r to the ag ency ’s interpre tation unle ss it is plainly err oneous or inconsistent with the lang uag e of the statute.’” Id. (quoting Texas Dep’ t of Ins. v. American Nat’l Ins. Co. , __S.W .3d__, 2012 WL 1759457, at *8 (Te x . 2012)).

We ag ree with DTWC that under a plain-mean i n g review of the rele vant statutes, it qualifies for a sales-ta x exemption on the hotel consumables that Red L ion put in its hotel rooms for its g uests. The hotel consumables wer e tang ible persona l proper ty that Red L ion acq u ired to 4put, i n the form or condition in which Red L ion acquir ed them, in the hotel rooms for its g uests

to use, not use, or take. Red L ion’s hotel g uests paid a fee —i.e., consideration—to use a room

an d its amenities, including the hotel consumables. Red L ion acquir ed and transfe rre d the ho t el consumables to its hotel g uests in the normal cour se of its business.

The Comptroller makes four arguments that are incompatible with the statutory text , and thus unpersua sive.

1. P urpose of th e sale-for-r esale e xem ption The Comptroller emphasizes that the purpose of the sale-f or-r esale exemption is to make sure that the same g oods are not twice subject to sales tax , such that “only the ultimate owner

o f t h e g oods should be burdene d by the sales tax.” See Sharp v. Clearview Cable TV, Inc

. , 960 S.W .2d 424, 426 (Tex. App.—Austin 1998, pet. denied) (“R et ai l er s are allowed to purcha se g oods tax-free from wholesale rs beca use the Tax Code rec og nizes that the consumer will ultimately

own and pay sales tax on the g oods purcha sed from the reta ilers.”) ; see also 7-Elev en, Inc. v. Combs , 311 S.W .3d 676, 684 (T ex . Ap p . — Austin 2010, pet. denied) (citing Clearview Cable TV for proposition that the “purpose of the sale-f or-r esale exemption is to preve nt double taxation”). Under the fac ts of this case , the Comptroller points out, the tang ible persona l proper ty at issue is not subject
to a double sales tax , but rathe r one sales tax when the g oods are boug ht and another tax, the hoteloccupa ncy tax, when a consumer pay s to use a Red L ion hot el room. See Tex. Tax Code Ann. § 156.051(a) (West 2008) (impos ing tax on “per son who . . . pay s for the use or poss ession

. . . of

a room . . . in a hotel”). I n other words, this is not the ty pical situation wher e the taxable items are , in the absen ce o f the sale-f or-r esale exemption, subject to sales tax when purcha sed by a reta iler

5and then ag ain later when boug ht by t h e u ltimate consumer. There fore , the Comptroller arg ues,

Red L ion’s purcha se of the hote l consumables should not be exempt. W e disag ree .

Whil e the Comptroller is corr ect that the g oods at iss u e h er e ar e not being taxed twice under the sales-ta x provisions of chapte r 151, we have rec ently explained that even if sales tax is not imposed on the ultimate sale or purcha se, “we are nonetheless bound to apply the exemption the [L ]egislature has written.” See Combs v. Health Care Servs. Corp. , No. 0 3

– 0 9

– 0 0 6 1 7 –CV, 2011 WL 1005419, at *8 (Tex. App.—Austin Mar. 16, 2011, pet. g rante d) (mem. op.) (citing Sharp v. T yler Pipe Indus., Inc. , 919 S.W .2d 157, 161 (Tex. App.

— Aus tin 1996, writ denied) ); see also Day & Zimmermann, Inc. v. Ca lvert , 519 S.W .2d 106, 110 (Tex. 1975) (apply ing sale-f or-r esale exemption even though ultimate “re sale” of items came within another tax exemption). I n ot h er words, if the plain lang uag e of the sale-f or-r esale exemption applies to DTWC’s purcha se of hotel consumables, we must conclude that DTWC is entitled to the exemption reg ardle ss o f whether sales tax was imposed on the ultimate consumer. See Health Care Servs. , 2011 WL 1005419 at *8 (applying plain lang uag e of sale-f or-r esale exempti o n althoug h L eg islature’s g ener al policy g oals underly i ng the sale-f

or-r esale exemption—i .e., to avoid py ramiding of sales tax on succe ssive
transac tions prec eding sale to the ult i m at e purcha ser—we re implicated); see also First Am. Titl e , 258 S.W .3d at 632 (noting that strict rules of construction for tax statutes apply only wher e statute at issue is ambig uous).

2. Consid erat ion The Comptroller also arg ues that DTWC’s transfe r of o wn er ship of the hotel consumables to its g uests was not a sale beca use the transfe r lacke d consid er at i o n . See Tex. Tax Code Ann. § 151.005 (r equiring consideration to qualify as any ty pe of sale or pur chase under the 6tax code)

. Specifica lly , the Comptroller asser ts that beca

use Red L ion’s g uests paid only for the overnig ht lodging , not the other incide ntals associate d with the room, the hotel consumable s were g ifts—i.e., transfe rre d without consideration. See Hilley v. Hilley , 342 S.W .2d 565, 569 (Tex. 1961) (“A g ift is a transfe r of proper ty made voluntarily and g ratu i t o u s l y . ”) ; Teague v. Edwards , 315 S.W .2d 950, 952 (Tex. 1958) (noting that g ift or g ratuitous service lacks consideration beca use there is no corr esponding promise t o pay for the item or

service ). B ut the Comptroller’s argument here is belied by t h e parties’ stipulation that Red L ion “cha rg ed its overnig ht g uests one fee for overnig ht lodging ,” which was “all-e ncompassing and included the use of a g uest room, the use of
t h e h o t el p roper

ty (including some or all of t he hotels amenities, such as pool or ex erc ise fac ility , and use of any in-room amenities including the Hotel Consumables).” Stat ed an o t h er way , the parties stipulated that Red L ion’s g uests paid for the hotel consumables when they paid for the use of the hotel room. Acc ording ly , owner ship of the hotel consumables was transfe rre d w it h c o n s id e r ation in the form of the overnig ht-lodg ing f ee. The Comptroller sug g ests that our d ec i s i o n in Southwest Airlines Co. v. Bullock , 784 S.W .2d 563, 572 (Tex. App.—Austin 1990, no writ), compels us to reje ct Red L ion’s argument t h at the consideration for the hotel consumables is included in the overnig ht-lodg ing pri ce . W e disag ree . I n Southwest Airlines , we addre ssed, among other issues, wh et h er the plastic cups Southwest Airlines used to serve non-alc oholic drinks to its passeng ers wer e exempt from sales tax. See id. at 571–72. Southwest argued, in part, that it fell under a Comptroller rule that allowed “food service operators” to buy tax fre e its non-f ood items that wer e furnished to customers with food or drinks, such as paper plates and disposable cups. See id

. (citing 34 Tex. Admin. Code § 3.293(c) (2)

7(1982) ). We conclude d that Southwest Airlines did not fall under this ru l e, p rincipally on our 2 deter mination that the phrase “food service operat o r” “log ically implies something more than the distribution to its customers of complimentary food and drinks.” Id. at 572. We also noted t h e Comptroller’s long pr actice of interpr eting rule 3.293 “ as providing an exemption only to those in the bus iness of selling

food.” Id. Southwest Airlines countered that, beca use t he cost of t he cups

was ultimately ref

lected in the price of eac h ticket, its distribution of cups to passeng ers was, in fac t,

a “sale ,” making Southwest Airlines a food service operator. Be cause we wer e “not persua ded that

a theore tical incre ase in the ticket price can be said to conver t a complimentary offe r of a bever ag e into a sale, and such a ‘sale’ to conver t an air car

rier into a food service operator,” we reje cted that arg ument. Id. But in the prese nt case , DTWC and the Comptro l l er s t i p ulated that the overnig htlodging fee actua lly included use of the hotel consumables—whe rea s in Southwest Airli n es t h e incre ase in price was only theore tical. See id. at 572. For that rea son alone, Southwest Airlines does
not prec lude us from acknow ledg ing the parties’ stipulation that the hotel g uest’s overnig ht-lodg ing fee included use of the hotel consumables—i.e., considera tion for those items. Fur

ther, even in the absenc e of the parties’ stipulations, the undisputed summary -judg ment evidenc e established that the

The full ver sion of the rule c ited in Southwest Airli nes provides— 2 Oper ators of eating establishments, cate rer s, and other fo o d s ervice operators may purcha se on resa le or exemption cer tificates those items which are furnished to their customers wi t h the food or beverag e; t hese items must be of a non-reusable nature or qualify for exemption as wra pping or packa g ing materia ls. Ex amples of such items shall include nonre u s a b le p a p er, wooden, plastic, and aluminum article s. Other items included are . . . cups (pa per, pla stic, or sty

rofoa m), . . . . See Southwest Airlines Co. v. Bullock , 784 S.W .2d 563, 572 (Tex. App.—Austin 1990, no writ). 8cost of the hotel consum ables repr esente d 2% of the room rate char g ed to hotel g uests and was a

fac tor in se tting the room rate

. Thus, the g uest’s pay ment of the over

night- lodging fee constituted consideration for the hotel consuma bles.

3. Norm al course of bu siness The Comptroller argues that DTWC is not e ntitled to the sale-f or-r esale exemption beca use Red L ion is not in the business of selling the hotel consumables. See Tex. Tax Code Ann. § 151.006(a) (“sa le-for -re sale” require s purcha se and resa le in the normal course of business). But the sale-f or-r esale exemption does not require t h at Red L ion be in the business of selling hotel consumables to qualify for the exemption. Rather, the tax code require s that the hotel consumables have been boug ht and resold “in the normal course of [R ed L ion’s] business.” See id. Her e, as the Comptroller acknow ledg es, Red L ion’s business is to provide its g uests with a cer tain ty pe or level of overnig ht sle eping acc ommodations. To provide its g uests with the ty pe of overnig ht lodging it adver tised and char g ed for, or at the very least the ty pe of overnig ht lodging that consumers demand, Red L ion boug ht cer

tain taxable items—i.e., the hotel consumables—that it decide d its g uests would want in its rooms and put those items in the rooms for the g uests to use or not use as they saw fit. Fur ther, i t ch ar ged its g uests for those items as part of the overnig ht-lodg ing fee for eac h room. Thus, part of Re d L ion’s business is to provide these consuma ble items to its hot el g uests. The Comptroller ag ain urg es that previ o us opinions from this Court prec lude us from holding that Red L ion tr ansfe rre d the hotel consumables in the normal course of its business. Specifica lly , the Comptroller argues that R ed L i on’s “provision of complimentary shampoo in its hotel rooms does not conver t it into a rese ller of shampoo,” rely ing on our holdings in Southwest Airlines , 784 S.W .2d at 572, and Delta Airlin es , In c. v. Combs , 318 S.W .3d 523, 525 9(Tex. App.—Austin 2010, no pet.). But in Southwest Airlines , also discussed above, we interpre ted

a specific Comptroller regulation using the phrase “food service operator” to hold that an airline does
not become a “f

ood service operator” simply by distributing complimentary food and dr inks to its
customers. See Southwest Airlines , 784 S.W .2d at 572. That opi n i o n did not, howeve r, interpre t section 151.006’s require ment that the purcha se and resa le occur in the normal course of business. Section 151.006 does not r equire that the purcha ser of the items be in the business of selling those

cer tain items; rather, it simply require s that the purchase and resa le be in the normal course of the purcha ser’ s business. See Tex. Tax Code Ann. § 151.006(a) (1). And in Delta Airlines , althoug h we

wer e interpre ting the sale-f or-r esale exemption, we held that Delta’ s purcha se of janitorial service s

was n o t done to rese ll them to the airport beca use Delta was fulfilling a contra ctual obligation to keep the lease d airport premises clea n; thus the airport was not “purc hasing or acquir ing” janitorial service s from Delta. See Delta Airlines , 318 S.W .2d at 525. Notably , we did not discuss whether the provision of those janitorial ser vices wa s in the normal cour se of De lta’s business. See id.

4. Appli cability of

use tax Finally , the Comptroller ar g u e s th a t e v e n if th e s a le

- f

o r - r e s a le exemption applies here , Red L ion’s use of the hotel consumables as marke ting tools—each consumable item had the hotel’s name and logo printed on it—subjects the i tems to the t ax code’ s use t ax. The Comptroller urg es further that Red L ion is liable for at least some tax under section 151.154(a) beca use that provision require s a purcha ser who “make s any use of the taxable item other than rete ntion, demonstration, or display while holding it f

or sale” to pay tax “on the value of the taxable item for any period during which the taxable item” was used for other than rete ntion, de monstration or display

. See Tex. Tax Code Ann. § 151.154(a) (West 2008); see also id. § 151.011(a) (West 2008) (def i n i n g “use” as 10“the exercise of a rig ht or power incidental to the owner ship of tang ible persona l proper ty over tang ible persona l proper

ty ”). We disag ree . The stipulated fac ts show that Red L ion stored the hotel consumables in a locked storeroom until they wer e put in the g uest rooms to be used on an as-ne eded basis by its g uests who had, by the t ime they enter ed the room, alre ady ag ree d to stay at t he hotel. I n other words, while t he consumables b el o n ged to Red L ion, they wer e not used for any purpose other than to stock the hote l rooms for the c onvenienc e of hote l gue sts.

CONCLUSION Be cause we deter

mine that DTWC is entitled to the sale-f or-r esale exemption for the hotel consumables, we reve rse the district court’s order g ranting summary judgme nt in favor of the Comptroller and rende r judgme nt tha t DTWC rec over the sales taxes in controve rsy in the amount of $17,485.53 plus interest.

__________________________________________ J eff Rose, J ustice Be fore J ustices Pury ear , Rose, and Goodwin Reverse d and Rende red Filed: Apr il 11, 2013

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