Could a city buy contracted garbage collection for resale without tax, and did it have to tax the amounts billed to residents and businesses?

Plain-English summary

The city was exempt from tax on taxable items bought for its own use as a Texas political subdivision. The letter said that included newly taxable garbage collection for city offices.

But the city also contracted with a commercial collector to serve residences and businesses, then resold those services to its customers. For those resale purchases, the city could issue the collector a resale certificate instead of paying tax.

The city had to collect sales tax on the garbage- and waste-collection amounts it billed customers for services performed on and after October 1, 1987. It also had to state those charges separately from nontaxable services. The prior-contract exemption for qualifying contracts signed on or before July 21, 1987 did not apply to items or services bought for resale.

What this means for you

The letter separated a city's own exempt purchases from services it resold. Its political-subdivision exemption covered the city's own use, while the resale certificate shifted tax collection to the city's sale to residents and commercial customers.

Common questions

Was the city exempt on garbage collection for its own offices? Yes under the letter.

Could the city issue its commercial collector a resale certificate? Yes for services the city resold to customers.

Did the city have to collect tax from customers? Yes, on garbage- and waste-collection services performed on and after October 1, 1987.

Did the prior-contract exemption apply to purchases for resale? No.

Citations and references

• Texas Comptroller Rule 3.322
• Texas Comptroller Rule 3.287
• Texas Comptroller Rule 3.356

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8710L0845E06

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller November 10, 1987

Dear ***:

Thank you for your recent letter requesting clarification on your
responsibilities as a provider of garbage and waste collection or
removal.

Your letter discusses three separate issues. First, the exempt status
of the city. Second, the contract the city has with CORP A, for garbage
collection. Third, the billing transaction between the CITY X and its
customers. I will attempt to clarify the taxability and your responsi-
bility in each of these situations.

First, as political subdivision of the State of Texas, CITY X is exempt
from paying tax on taxable items purchased for the city's own use. This
includes newly taxable services such as garbage collection from city of-
fices, etc. Please see Rules 3.322, 3.287. and 3.356 which I am
enclosing
for your information. Paragraphs four and five will cover your responsi-
bilities as the seller of taxable items to your customers.

Second, CITY X has contracted with CORP A. to collect garbage and waste
from residences and commercial entities in the city. Because CITY X is
reselling these services to its customers you may issue a resale certi-
ficate to CORP A in lieu of the tax. The allowance for prior contract
exemptions on qualifying contracts signed on or before July 21, 1987
does not apply to items or services you purchased for resale.

Third, you, CITY X, are reselling these services to your customer and
must collect tax on the amount you bill your customers for these garbage
and waste collection services performed on and after October 1, 1987.
The amount billed for the garbage and waste collection services should
be separately stated from other non-taxable services.

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 Policy Division.

Sincerely,
(Mrs.) Jo Ann Dieck
Tax Policy Division