March 3, 1997

BILL ANALYSIS

TO:       Members, Committee on Trade and Economic Development

FROM:     Kenny Pittman, Research Analyst  (786-7392)

RE:       HB 2104 - Exempting consumables used by the lodging industry from sales         and use tax.

BACKGROUND:

The sales tax is imposed on retail sales of most items of tangible personal property and some services.  The state rate is 6.5 percent and is applied to the selling price of the article or service.  In addition, local sales taxes apply.  The total combined rate is between 7 percent and 8.2 percent, depending on the location.

The sales tax applies when items are purchased at retail in the state.  Sales tax is paid by the purchaser and collected by the seller.  Use tax is imposed on the use of an item in this state, when the acquisition of the item has not been subject to sales tax.  Use tax applies to items purchased from sellers who do not collect sales tax, items acquired from out of state, and items produced by the person using the item.  Use tax is equal to the sales tax rate multiplied by the value of the property used.

SUMMARY:

A sales and use tax exemption is provided on consumables sold to or used by a business engaged directly in the lodging industry.  Consumables are defined as hand or body soap, hair shampoo, skin conditioners and oils, toilet paper, and tissue paper.  Lodging industry means the furnishing of lodging for a continuous period of less than 30 days.

To be eligible for the sales tax exemption the purchaser must provide the seller an exemption certificate with a copy to the Department of Revenue (department) or provide an annual summary of exempt sales to the department.  To be eligible for the use tax exemption the user must provide an exemption certificate to the department within 60 days or provide an annual summary of exempt sales to the department.

Appropriation:  None.

Fiscal Note:  Requested February 25, 1997

Effective Date:  The bill contains an emergency clause and takes effect July 1, 1997.