How did Texas tax rentals of manufactured homes, trash trailers, and trailer-mounted septic systems used at oilfield sites?

Plain-English summary

The Texas Comptroller gave different answers for three types of property rented mainly at oilfield sites.

Manufactured homes. Assuming the units were housing-department-labeled manufactured homes rather than mobile offices or travel trailers, manufactured housing tax applied only to the initial purchase. Their rental was treated as hotel occupancy under Tax Code Chapter 156 and Rule 3.161(a)(4), not as a sales-tax rental. A stay under 30 consecutive days was taxable. For the permanent-resident exemption, the customer needed an uninterrupted rental of at least 30 consecutive days and advance notice of that intention. Without a written commitment or binding contract, state hotel tax applied for the first 30 days and the customer was exempt afterward.

The letter stated that the Comptroller collected the 6% state hotel tax while cities and counties collected local hotel tax. Section 156.053 made the operator responsible for remitting state tax on taxable charges even when the guest did not pay the invoiced tax.

Trash trailers. Because the company also removed the trash, it provided taxable waste disposal service under Chapter 151. Limited sales tax applied to the entire service charge, including the trailer component. The company also owed motor vehicle sales tax when it purchased a trailer used to provide that taxable service.

Trailer-mounted septic systems. The entire rental charge—including a separately stated septic-service charge—was subject to motor vehicle rental tax under Chapter 152. The letter quoted different rates for 1–30-day and 31–180-day contracts, allowed a qualified permit holder to register rental vehicles tax-deferred, and treated a contract over 180 days as a lease rather than a taxable rental, with the vendor owing tax on the vehicle purchase. Those 2001 rates and rules require current verification.

For limited sales tax and motor vehicle rental tax generally, the letter said the Comptroller could hold either purchaser or seller liable for unpaid tax. The tax became part of the sales price and a debt recoverable from the purchaser like the original price.

What this means for you

Oilfield and equipment rental businesses

Do not apply one tax treatment to every trailer or mobile unit. Classification, the service bundled with the equipment, and the contract's duration changed the result.

Manufactured-home operators

Advance commitment and uninterrupted occupancy controlled when the permanent-resident exemption began. The operator remained responsible for state hotel tax even if it failed to collect the tax from the guest.

Waste and septic-service providers

Removing trash made the whole trash-trailer charge a taxable service and did not exempt the trailer purchase. By contrast, the septic unit was analyzed under motor vehicle rental tax, including its separately stated service charge.

Common questions

Q: Was a manufactured-home rental subject to sales tax?

A: On the stated assumptions, no. Rule 3.161 treated it as hotel occupancy instead.

Q: Could the operator avoid remitting hotel tax if the customer did not pay it?

A: No. The letter placed collection and remittance responsibility on the operator.

Q: Was only the trash trailer's rental charge taxable?

A: No. Because the company removed the trash, the entire waste-disposal charge was taxable, and motor vehicle sales tax was also due on the trailer purchase.

Q: Were separately stated septic-service charges outside rental tax?

A: No. The letter included both the septic-system rental and the separately stated service charge in motor vehicle rental tax.

Citations and references

• Tex. Tax Code chs. 151, 152, and 156
• Tex. Tax Code § 156.053
• Hotel Occupancy Tax Rule 3.161(a)(4)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/200110578L

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