News and Insights

Kentucky and Texas Reject Sale-for-Resale Claims by Service Providers

Tax Development Feb 24, 2017

In recently published hearings, Kentucky and Texas rejected sale-for-resale claims. (See Kentucky Claims Commission Tax Appeals File Number K16-R-03 and Texas Comptroller Hearing Number 110,655.)

In the Kentucky hearing, the taxpayer provided various services to related insurance providers, including managing group insurance plans. As a part of its service, the taxpayer provided benefit statements to insureds. The benefit statements included other information, such as, appeal rights, health tips, medical information, and advice on how to locate doctors. The taxpayer claimed a sale-for-resale exemption on rolls of paper delivered to its print shop, which were used to print the statements. In finding that the taxpayer used the paper to provide its non-taxable services, the Kentucky Commission explained that the statements were the result of “a number of interrelated and coordinated services, professional and otherwise, that provide information, assistance and advice” to insureds.   

In Texas Hearing Number 110,655, the taxpayer leased a building to the General Services Administration (GSA). The lease required that the building be cleaned twice a day, and the GSA reimbursed the taxpayer for the second cleaning. The taxpayer purchased the janitorial services from a third party, paid sales tax on the services, and requested a refund of the tax. The administrative law judge found that services were purchased to enable the taxpayer to fulfill its legal obligations under the lease agreements and denied the refund.

Please note, however, that the Comptroller requires landlords to collect tax from non-exempt tenants on charges for taxable services provided in tenant-occupied space. No tax is due on reimbursements for services provided in common areas. (See Comptroller Letter Ruling 200103322L and 201304670L.)

Both cases highlight the issue of the sale-for-resale concept being utilized in a service industry, and the attention to this issue for the service sector economy will prove to be very important.


Adina Christian