Were indoor plant leasing, maintenance, sales, and short-term rentals taxable, and which inputs could the provider buy for resale?

Plain-English summary

The letter addressed several indoor-plant business models. Leasing and maintaining provider-owned plants was a taxable real-property service. Maintenance of customer-owned plants, with or without a replacement guarantee, was taxable maintenance of tangible personal property. Plant sales and short-term plant rentals were also taxable.

Under the 1991 analysis, the provider could issue resale certificates for plants and specified items whose care, custody, and control passed to the customer as part of the taxable service, including containers, fertilizer, plant food, and replacement plants. The letter said legal ownership of leased plants did not control that analysis.

STAR now places an alert above the letter directing readers to Rule 3.285, amended November 1, 2017, for specific current guidance on care, custody, and control when providing a taxable service. The 1991 resale analysis should not be applied without checking that amended rule.

The letter also discussed possible refunds or credits for tax previously paid to suppliers and stated a four-year limitations period.

What this means for you

Plant businesses may conduct several taxable transactions at once: rentals, tangible-property maintenance, real-property services, and retail sales. The treatment of inputs depends on whether they qualify for resale under the applicable rule, and STAR expressly warns that the later Rule 3.285 guidance matters.

Common questions

Was leasing and maintaining provider-owned plants taxable? Yes, as a taxable real-property service under the letter.

Was maintaining customer-owned plants taxable? Yes, whether or not the service included a replacement guarantee.

Were plant sales and short-term rentals taxable? Yes.

Which items did the 1991 letter allow the provider to buy for resale? It identified plants, containers, fertilizer, plant food, and replacement plants in the described transactions.

Can a business rely only on the 1991 care-custody-and-control discussion today? STAR says to consult amended Rule 3.285 for specific guidance.

Citations and references

• 34 Tex. Admin. Code Rule 3.285 — later-amended resale-certificate guidance flagged by STAR
• 34 Tex. Admin. Code Rule 3.325 — supplier refund or credit procedures cited by the letter
• 34 Tex. Admin. Code Rule 3.338 — taking credit for tax paid to suppliers

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9104L1106E09

Original ruling text

ALERT: For specific guidance relating to the care, custody and control of TPP when providing a taxable service, please see Rule 3.285, Resale Certificates; Sales for Resale (amended 11/01/2017.

April 25, 1991

Dear **:

Thank you for your recent letter, regarding house-plant leasing and maintenance
services. I have broken down your questions below, followed by answers.

Situation 1: Interior Plant Lease. Your client places plants and containers in
a customer's office. Your client leases the plants to the customer for a
monthly fee. Your client maintains ownership of the plants. Your client agrees
to maintain the plants (water, fertilize, feed, etc.), and to replace them as
needed.

Questions: Is this a taxable service? What may the client purchase tax free in
performing this service?

Answer: Leasing and maintaining lessor-owned plants is a taxable real property
service, effective October 1, 1987. The client may issue a resale certificate
to purchase the plants, containers, fertilizer and plant food tax free, because
care, custody and control of these items is being transferred to the customer
as part of the taxable service. It does not matter that the customer will not
actually own the plants.

Prior to October 1, 1987, leasing and maintaining lessor-owned plants was a
nontaxable service, and the service provider was responsible for paying tax on
all items used to provide the service.

Enclosed Rule 3.325 discusses the procedures for obtaining tax refunds or
credits from suppliers. Enclosed Rule 3.338 discusses taking credit for tax
paid to suppliers. There is a four-year statute of limitations on refunds and
credits.

Situation 2: Guaranteed Plant Maintenance: Your client's customers purchase
plants from your client or elsewhere. Your client contracts to maintain these
plants at the customer's location and replace plants as needed.

Questions: Is this a taxable service? What may the client purchase tax free to
provide this service?

Answer: Maintenance of customer-owned plants has been a taxable service since
October 1, 1984, as maintenance of tangible personal property. The same answers
given in Situation 1 regarding tax free purchases apply.

Situation 3: Special items. Your client sells some plants, does plant
maintenance without guarantee, and some short term plant rental.

Questions: Are these taxable services? What may the client purchase tax free to
provide these services?

Answer: Sales of plants are taxable sales of tangible personal property. Your
client may issue a resale certificate to buy plants that he or she resells.

Maintenance of customer-owned plants, with our without guarantee, has been a
taxable service since October 2, 1984. Your client may issue a resale
certificate to purchase items whose care, custody and control are transferred
to the client as part of the service. For example: Fertilizer, plant food,
replacement plants and containers.

Short term plant rental, by itself, is a taxable rental of tangible personal
property. Your client may issue a resale certificate to purchase plants that he
or she will rent to customers.

Based on your description, your client has properly collected tax on the above
sales, rentals and services. It also appears that your client may be entitled
to some refunds or credits.

This opinion is based on the facts presented. Different facts, though similar,
might lead to different answers. If you have further questions, feel free to
write or call 1-800-252-5555. My direct extension is 3-3889.

Sincerely,

John Christian
Attorney
Tax Administration