An oilfield-services rental company rents out three different things -- mobile homes, trash trailers used to collect and remove jobsite garbage, and septic systems mounted on trailers. What tax (if any) applies to each, and who's on the hook if the customer doesn't pay it?

Plain-English summary

An oilfield-services rental company asked about the tax treatment of three different things it rents out, plus who's liable when a customer doesn't pay tax that was billed. The Comptroller addressed each rental type separately, since Texas taxes them under three completely different chapters of the Tax Code.

1. Manufactured (mobile) homes. These count as a "hotel" under Hotel Occupancy Tax Rule 3.161(a)(4), so they're subject to the 6% STATE hotel occupancy tax (Chapter 156), not sales tax (local hotel tax is collected separately by cities/counties, not the Comptroller). A rental under 30 consecutive days owes the tax. A customer can qualify as a tax-exempt "permanent resident" if they commit IN ADVANCE, in writing, to renting for at least 30 consecutive days with no interruption in payment — but without that advance written commitment, tax is due on at least the first 30 days regardless of how long the stay actually turns out to be.

2. Trash trailers used to remove jobsite garbage. This isn't a rental of equipment at all in the Comptroller's eyes — it's a taxable WASTE DISPOSAL SERVICE under Chapter 151, so Texas limited sales tax applies to the ENTIRE charge, including the portion billed for the trailer itself. Separately, the trailer itself owes motor vehicle sales tax when the rental company purchases it, since it's being used to provide a taxable service.

3. Septic systems mounted on trailers. These fall under the MOTOR VEHICLE RENTAL TAX (Chapter 152) on the whole charge (the trailer/system plus the septic service): 10% for a single contract of 1-30 days, 6.25% for 31-180 days, and NOT taxable at all if the contract runs longer than 180 days (that makes it a "lease" rather than a rental) — though in the lease case, the rental company itself owes tax when it originally purchased the vehicle.

On unpaid tax: the operator remains responsible for hotel tax even if it was not collected. For sales and motor vehicle rental tax, the Comptroller may hold either purchaser or seller liable; the tax becomes part of the price and is the purchaser's debt to the seller.

What this means for you

Oilfield and jobsite equipment rental companies

Don't assume one blanket "equipment rental" tax rule applies across your whole fleet — mobile homes, trash-hauling trailers, and septic trailers each fall under a different Tax Code chapter with different rates and different exemption rules. Sort your invoicing by rental type accordingly.

Businesses offering month-plus mobile home rentals

Get the 30-day-plus commitment IN WRITING and IN ADVANCE if you want your customer to qualify as an exempt "permanent resident" — without that advance written commitment, you owe hotel tax for at least the first 30 days no matter how the rental actually plays out.

Anyone worried about tax liability on unpaid customer invoices

For hotel tax, the business remains responsible even if the guest did not pay it. For sales and motor vehicle rental tax, the Comptroller may pursue either party, and the tax is a debt the purchaser owes the seller.

Common questions

Q: Is renting out a mobile home the same as renting regular equipment for sales tax purposes? A: No, per this letter — a manufactured home rental is subject to state hotel occupancy tax, not sales tax.

Q: Is trash-trailer rental just equipment rental, or something else? A: Per this letter, when the company itself collects and removes the trash, that's a taxable waste disposal SERVICE — sales tax applies to the entire charge, including the trailer portion.

Q: What if my customer doesn't pay the tax I billed them? A: For hotel tax, the business must remit it even if it was not collected. For sales and motor vehicle rental tax, either purchaser or seller may be held liable; the seller may recover the tax as part of the price.

Citations and references

Statutes and rules:

• Tex. Tax Code Chapter 156 (Hotel Occupancy Tax); § 156.053 (collection duty on the hotel operator)
• Tex. Tax Code Chapter 151 (waste disposal as a taxable service)
• Tex. Tax Code Chapter 152 (motor vehicle rental tax rates and lease exclusion)
• 34 Tex. Admin. Code Rule 3.161(a)(4) (manufactured home included in "hotel" definition)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200110576L

Original ruling text

October 30, 2001

Dear **:

Thank you for your letter about sales tax invoiced, but not paid by your customers. I am pleased to be of assistance.

You state that your business rents mobile homes, trash trailers (trailers with steel boxes attached), and septic systems permanently mounted on trailers primarily for use at oilfield sites. You mention that the average rental is for 45 days.

Presumably, the mobile homes you rent are manufactured homes labeled by the Texas Department of Housing and Community Affairs and are not mobile offices or travel trailers. Manufactured Housing Tax is imposed only on the initial purchase. The rental of a manufactured home may be subject to the Texas Hotel Occupancy Tax under Tax Code Chapter 156. The rentals of mobile offices or travel trailers are taxed differently.

Section (a)(4) of Hotel Occupancy Tax Rule 3.161 Definitions, Exemptions, and Exemption Certificate states that a manufactured home is included in the definition of a hotel and, consequently, is subject to the hotel tax and not to the Texas Sales and Use Tax.

If your customer rents a mobile home for less than 30 consecutive days, hotel occupancy taxes are due. Your customer may qualify for an exemption from tax as a permanent resident provided the mobile home is rented for at least 30 consecutive days. To qualify for the exemption from tax, there must be no interruption of payment during that period and your customer must notify you at the beginning of the rental (in advance) of their intention to rent the mobile home for at least 30 consecutive days. Without a written commitment or binding contract indicating an intention to rent for at least 30 consecutive days, then the state hotel occupancy tax will be due for the first 30 days; thereafter, your customer will be exempt.

The Comptroller's Office only collects the 6% state portion of the hotel occupancy tax. Local authorities (cities and counties) are responsible for the collection of local hotel occupancy tax.

Enclosed is a hotel occupancy tax questionnaire for your convenience if the contracts for the rentals do not qualify for exemption under the permanent resident provision. If you have questions about hotel occupancy tax or the questionnaire, you may contact Don Dillard of our Miscellaneous Tax Policy Section toll-free at 1-800-531-5441, extension 6-6171.

In response to your concern about who will be responsible for taxes on the rental of a manufactured home if billed to a customer, but not paid by the customer, Tax Code Section 156.053 states:

A person owning, operating, managing, or controlling a hotel shall collect for the state the tax that is imposed by this chapter and that is calculated on the amount paid for a room in the hotel.

Consequently, your business is responsible for remitting the hotel tax on these charges, even if the tax was not collected from the hotel's guests.

The following information applies only to the rental of the flatbed trailers used to collect and remove household trash.

In a recent conversation with Curt Swenson of our Sales Tax Policy Section, your representative stated that your company removes the trash from the jobsite. Under Tax Code Chapter 151, this service you are providing is a taxable waste disposal service and, as such, Texas limited sales tax is due on the entire charge for the waste disposal service including the charge for the trailer. Additionally, you should know that motor vehicle sales tax is due at the time of the purchase of a trailer to be used in providing a taxable service subject to sales tax.

The following information is specific only to the rental of the septic systems attached to flatbed trailers. Their rental (the entire charge for the septic system on the trailer and the separately stated charge for the septic service) is subject to the Motor Vehicle Rental Tax under Chapter 152 of the Tax Code. The tax rate for a motor vehicle rental under a single contract for 1-30 days is 10%. The tax rate for a motor vehicle rental under a single contract for 31-180 days is 6.25%. A qualified motor vehicle rental permit holder may register their motor vehicle tax deferred. A contract exceeding 180 days is termed a lease and is not taxable. The vendor would owe tax on the purchase of the leased motor vehicle.

Regarding the limited sales tax and the motor vehicle rental tax, the Tax Code allows the Comptroller to hold either the purchaser or the seller liable for unpaid tax. The Tax Code also provides that the tax becomes part of the sales price and is a debt of the purchaser to pay to the seller. The tax is recoverable at law in the same manner as the original sales price.

You may want to show the customer this letter or suggest that he write to this office and request an opinion of the taxability of the items he is renting for his business.

The entire text of the Tax Code, a complete set of rules, and other tax information are available through our website at .

This opinion is based on the information presented. If there are additional or different facts, the opinion could change.

If you have any questions or need more information, I will be glad to help you. You may e-mail me at , or you may call me toll-free at 1-800-531-5441, extension 3-4622.

Sincerely,

Stefanie B. Medack
Tax Policy Division