How did Texas tax removable lockers leased to nightclubs and then rented by the clubs to patrons?

Plain-English summary

A locker company leased removable acrylic lockers to nightclubs, which then rented them to patrons and remitted half of the rental receipts to the locker company. Because the lockers were not permanently affixed, they remained tangible personal property.

The nightclub had to collect and remit tax on patron rentals. Its payment to the locker company was not taxable if the nightclub gave the company a resale certificate. The locker company still needed a tax permit, reported rentals and sales as gross sales, and treated them as taxable unless it accepted a valid resale certificate.

The company could also use properly completed certificates for qualifying materials that became component parts of the lockers.

Common questions

Who collected tax from patrons? The nightclub.

Was the nightclub's payment to the locker company taxable? Not with a valid resale certificate.

Did the locker company need a tax permit? Yes.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9003L0992C10

Original ruling text

March 12, 1990

Dear ***:

In your letter of February 23, you requested information concerning the rentals
of lockers in nightclubs.

You state that your business, *** leases acrylic lockers to
nightclubs who will subsequently rent the lockers to patrons. You will collect
50% of the nightclub rental fee on a monthly basis.

You also indicate that you discussed your business activities with
*** of this agency who gave you various guidelines relative to your
sales and use tax responsibilities. I have discussed your letter with
***** who indicated that your lockers aren't permanently affixed in the
nightclub (i.e., the lockers remain tangible personal property after they are
installed).

The nightclub must collect and remit sales tax on the locker rentals. However,
the portion of the rental payments which the nightclub sends to you isn't
taxable if the nightclub issues you a resale certificate.

In either case, you are required to have a tax permit because you are renting
tangible personal property. You should report the rentals (and any sales) as
gross sales on your return. Rentals and sales are also included in taxable
sales unless you accept a resale certificate.

You may issue a valid, properly completed resale or exemption certificate on
materials which become a component part of the lockers as indicated in the
enclosed Comptroller's Rule 3.300 (Manufacturing; Custom Manufacturing;
Fabricating; Processing). In addition, you should carefully review Rule 3.300
to determine if there are additional materials which you may purchase tax-free.

Finally, I have also enclosed Comptroller's Rule 3.287 (Exemption Certificates)
and Rule 3.285 (Resale Certificate; Sales for Resale) which address the
requirements for exemption and resale certificates respectively. I have also
enclosed a Texas Sales Tax Resale Certificate and Texas Sales Tax Exemption
Certificate which you may reproduce as needed.

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

If you have any questions, please contact Tax Correspondence. You may call
toll free 1-800-252-5555, or our regular number is 512/463-4600. My extension
is 3-4662. You may write me at Tax Correspondence, Comptroller of Public
Accounts.

Sincerely,

Bob Jeffcoat
Tax Correspondence