Were separately billed cylinder charges taxable when a Texas gas reseller passed supplier-owned cylinders to customers and returned the empties?

Plain-English summary

The Texas Comptroller said the separately billed cylinder charges were not taxable because they were not true rentals under the sales-and-use-tax statute.

The supplier owned the cylinders and sold gas in them to the taxpayer, which resold the gas to customers in the same cylinders. Customers returned empty cylinders, and the taxpayer exchanged them with the supplier for filled ones; the taxpayer did no tank filling itself.

The taxpayer had been charging tax on its cylinder charge. The letter said any tax collected had to be reported to the state unless the taxpayer refunded it. It also stated that refunds were subject to a four-year limitations period.

What this means for you

The label "rental charge" did not control. The Comptroller looked at the actual exchange arrangement and concluded it was not a true rental. The letter also makes clear that tax collected from customers cannot simply be kept after a charge is found nontaxable.

Common questions

Were the supplier's cylinder charges taxable? No.

Were the reseller's cylinder charges to customers taxable? No.

Why not? The Comptroller concluded that the arrangement was not a true rental.

What happened to tax already collected? It had to be reported to the state unless refunded. The letter stated a four-year limitations period for refunds.

Citations and references

• The letter referred generally to the Texas sales-and-use-tax statute but gave no section number.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8703L0807G09

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TX 78774

BOB BULLOCK
Comptroller

Dear *:

Thank you for your recent letter regarding the taxability of cylinder
rental charges.

Per our telephone conversation, your supplier owns the cylinders and
sells you the gas in these cylinders. In turn, you resell the gas to
your customers in the same cylinders. When your customers return the
empty cylinders, you send them back to your supplier in exchange for
filled ones. Therefore, your company does not do any filling of the
tanks.

You also stated that your supplier bills your company for the gas plus a
"rental charge" for the cylinder, and your invoice to your customer has
a cylinder "rental charge" as well as a charge for the gas. You are
currently charging tax on the "rental" to your customer.

Neither of these "rental charges" is taxable, as this is not a true
rental under the sales and use tax statute. As I explained, you must
report any tax you collect to the state if you do not choose to refund
it. Also, any refunds are subject to a four-year statute of
limitations. If you have any refund situations, please let me know and
I will send you some information on the procedure.

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

If you have any questions or need more information, please call me at
1-800-252-5555 toll free from anywhere in Texas. The regular number is
512/463-4600. You may write me at the Tax Administration Division.

Sincerely,

Sandi Skaggs
Tax Policy Section
Tax Administration Division