25,690 La.App. 2 Cir. 3/30/94, S & R Hotels v. Fitch

• Decision Date: 30 March 1994
• Citation: 634 So.2d 922
• Parties: 25,690 La.App. 2 Cir
• Court: Court of Appeal of Louisiana — District of US

Page 922

634 So.2d 922

25,690 La.App. 2 Cir. 3/30/94

S & R HOTELS, a Louisiana Partnership d/b/a Richmond Suites

Hotels, Plaintiff-Appellee, v. Edward A. FITCH, Administrator, Caddo-Shreveport Sales and Use Tax Commission, Defendant-Appellant.

Shelby R. SMITH, Trustee, d/b/a Chateau Suite Hotel of

Shreveport, a Louisiana Partnership, Plaintiff-Appellee, v. Edward A. FITCH, Administrator, Caddo-Shreveport Sales and Use Tax Commission, Defendant-Appellant.

Nos. 25690-CA, 25691-CA.

Court of Appeal of Louisiana Second Circuit.

March 30, 1994.

Mayer, Smith & Roberts by George T. Allen, Jr., Shreveport, for appellant.

McGlinchey, Stafford & Lang by Steven I. Klein, New Orleans, Skeels & Coleman by Ben E. Coleman, Shreveport, for appellee.

Before NORRIS, LINDSAY and STEWART, JJ.

LINDSAY, Judge.

The plaintiffs, Richmond Suites Hotels and the Chateau Suite Hotel, filed suit against the defendant, Edward A. Fitch, administrator of the Caddo-Shreveport Sales and Use Tax Commission, to recover taxes paid under protest. The trial court entered judgment in favor of the plaintiffs and the defendant appealed. For the following reasons, we affirm the trial court judgment.

FACTS

The issue in this case is whether the plaintiffs are required to pay sales tax when they purchase food and beverages from various vendors, and then furnish those items on a "complimentary" basis to their hotel patrons. The plaintiffs routinely provide complimentary breakfast, cocktails, and in-room coffee to hotel patrons. This is offered as part of the marketing strategy of the hotels. Persons who are not hotel patrons may also obtain breakfast and cocktails, but are required to pay a fee.

In February, 1992, the defendant completed an audit of the plaintiff-hotels and concluded that the food and beverages purchased wholesale by the hotels for the "free" breakfasts, coffee and cocktails were not purchases for resale and that the hotels were the ultimate consumers of these goods. Therefore, the defendant concluded that the hotels were required to pay sales tax on these purchases.

The plaintiffs, who had not previously paid sales tax when making these purchases, were assessed with taxes due, penalties and interest. The Chateau's total assessment was $5,526.93 and the Richmond's assessment was $4,216.56. The plaintiffs paid these amounts under protest and filed separate suits to recover the amounts paid. The cases were consolidated prior to trial.

The plaintiffs contend that the concept of the suite hotel is to offer more spacious, "luxury" accommodations with more extensive amenities than those offered in traditional hotels. Among the more extensive amenities offered are the "complimentary" breakfast, coffee and cocktails. In the trial court, the plaintiffs contended that they sell package deals to hotel guests which include not only the use of the room, but also the breakfast, coffee and cocktails. They alleged that, although these items are advertised as being "free," in fact they are included in the price of the room. The plaintiffs alleged that the total cost of these items, per person, is $7.50. They argued that these items, initially purchased wholesale from various vendors for the food and beverage service are not purchased for consumption by the hotels, but are actually purchased for resale to the hotel patrons, within the meaning of the applicable tax statutes. Therefore, the plaintiffs argue that they are not required to pay the sales tax imposed by the defendant.

The plaintiffs contended that hotel patrons are charged the applicable state and local sales tax and hotel occupancy tax on the total amount charged for the room and "complimentary" food and beverage packages. That is, a total tax of eleven percent was charged on the entire package price, including the food and beverage items, even though the tax due on the food and beverage would not have included the three percent hotel occupancy tax. They contend that this tax was collected on rooms, food and drink and was forwarded to the appropriate taxing authorities. The hotels also contended that to impose a sales tax at the time the food and beverage items were initially purchased at wholesale, in addition to the taxes which they collected from their patrons, would amount to "double taxation."

Trial on the consolidated cases was held on April 12, 1993. Steve McLauren, accountant for Smith Management, testified regarding the sales tax practices employed by the Chateau and Richmond Suites. Mr. McLauren stated that four percent sales tax is paid in advance to food and beverage suppliers and a sales tax credit is later taken on monthly sales tax returns. Mr. McLauren stated that seven percent of the total operating cost of Chateau Suite Hotel is allocated to the breakfast and beverage program. He also testified that ten percent of the total operating cost of Richmond Suites Hotels is allocated to breakfast and beverages. Sales tax on these items was charged to the hotel customers and submitted to the appropriate taxing authorities.

On May 12, 1993, the trial court filed written reasons for judgment, ruling in favor of the plaintiffs. The court found that the issue turned on the definition of "sale at retail", as defined in LSA-R.S. 47: 302(A) and the applicable Caddo-Shreveport Sales and Use Tax Ordinance. The court stated that the sales and use tax applies only upon the sale at retail, the use, the consumption, the distribution and the storage for use or consumption in Louisiana and Caddo-Shreveport of tangible personal property. This tax does not apply to purchases of goods intended to be resold. The court then found that the hotels were not the ultimate consumers of the food and beverages, but purchased these items for resale to customers, i.e. the guests of the hotels. Therefore, the plaintiffs did not owe sales tax when they purchased these items and were entitled to recover the sums paid under protest.

On May 28, 1993, judgment was filed in the trial court in favor of the plaintiffs, ordering the return of the amount of taxes paid under protest, plus interest and penalties. On June 7, 1993, the defendant appealed the trial court judgment.

On appeal, the defendant claims that the trial court erred in holding that the plaintiffs purchased food and beverages for resale to hotel customers. The defendant argues that the plaintiffs furnished customers with food and drink as a part of the hotels' function in renting rooms to patrons. The defendant also argues that the breakfast and drinks were not sold to the hotel guests because the guests did not have the opportunity to decide whether to purchase these items. Accordingly, the defendant contends that the trial court erred in holding that these purchases by the hotel were not subject to the sales and use tax.

To the contrary, the plaintiffs contend that the trial court was correct in finding that the food and beverages purchased by the hotels were purchased for resale to its customers.

DISCUSSION

The applicable ordinances under which the defendant levied the taxes at issue in this case are Sections 2.01 and 1.16 of the Caddo-Shreveport Local Sales and Use Tax Ordinances, which track LSA-R.S. 47: 302(A) and 301(10)(a), respectively.

Section 2.01 of the Caddo-Shreveport Local Sales and Use Tax Ordinances follows the language of LSA-R.S. 47:302(A), which provides:

There is hereby levied a tax upon the sale at retail, the use, the consumption, the distribution, and the storage for use of consumption in this state, of each item or article of tangible personal property as defined herein....

Section 1.16 of the Caddo-Shreveport Local Sales and Use Tax Ordinances tracks the language of LSA-R.S. 47: 301(10)(a), which provides:

"Retail sale", or "sale at retail," means a sale to a consumer or to any other person for any purpose other than for resale in the form of tangible personal property and shall mean and include all such transactions as the collector, upon investigation, finds to be in lieu of sales; provided that sales for resale must be made in strict compliance with rules and regulations. Any dealer making a sale for resale, which is not in strict compliance with the rules and regulations, shall himself be liable for and pay the tax.

"Retail" is the selling of commodities or goods in small quantities to the ultimate consumer. A "retail sale" is any sale by one regularly engaged in the business of selling to customers who buy for their use or consumption and not for resale to others. Codesco v. Collector of Revenue, 365 So.2d 577 (La.App. 1st Cir.1978).

The issue in this case is whether the plaintiffs actually charged hotel patrons for food and drink as a retail sale upon which taxes were paid. The trial court found that the price of the food and beverage was included in the total price charged to hotel patrons, as a "package deal." The trial court also found that the hotels charged the patrons the applicable sales tax on the entire package, including the food and beverage items, and thereafter submitted the amount of this tax to the appropriate taxing authorities.

Both the plaintiffs and the defendant cited several cases, largely from other jurisdictions, dealing with the imposition of sales tax. We have examined the cases cited by the parties and find that where a hotel, independent contractor, dentist, airline or other business purchases goods to be used in furnishing a traditional service to customers, the purchase of the goods is not for resale and sales tax is imposed upon the business-purchaser. However, when there is a showing that the goods initially purchased by the business are not ordinarily furnished in the traditional course of providing a service and there is a showing that the goods are resold to the ultimate consumer, the business is not...