Who had to collect and remit Texas sales tax on janitorial services performed by franchisees?

Plain-English summary

The Comptroller concluded that a redacted franchisor of janitorial services was the retailer of the taxable services performed through its franchisees.

As the retailer, the franchisor had to obtain a sales tax permit and collect and remit all tax due on the franchisees' services. The letter directed the requester to Texas Tax Code Section 151.024.

The STAR document also includes an earlier internal memorandum discussing the administrative problem of collecting tax from numerous franchisees. That memorandum considered having the franchisor remit tax but said the policy decision required further executive and Tax Policy review; the later June 4, 1991 letter states the Comptroller's conclusion for this taxpayer.

What this means for you

In the arrangement described, Texas placed the retailer and collection responsibility at the franchisor level, even though franchisees performed the janitorial work.

Common questions

Who was treated as the retailer? The franchisor.

Did the franchisor need a sales tax permit? Yes.

Which transactions did it have to report? All taxes due on services performed by the franchisees.

Did the attached 1990 memorandum itself make the final determination? No. It discussed possible administration and called for further policy review; the 1991 letter supplied the stated conclusion.

Citations and references

• Texas Tax Code § 151.024 — provision the Comptroller told the requester to consult

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9106L1120G06

Original ruling text

June 4, 1991

Dear *****:

Thank you for your recent letter regarding the sales tax responsibilities of
**.

It is the opinion of this office that **, as a franchisor of
janitorial services, is considered to be the retailer of the taxable services
provided. As the retailer, ** is required to have a sales tax
permit, collect and remit all taxes due on services performed by franchisees.
Please refer to Section 151.024 of the Texas Tax Code.

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, you may call me toll free
at 1-800-531-5441, extension 5-0330. The regular number is 512/463-4600, or
write Tax Administration Division.

Sincerely,

Bettie U. Peterson
Tax Administration Division

DATE: August 9, 1990

TO: Suzanne Blaine, Agency Evaluation Coordinator

FROM: Bob Russ, Executive Assistant for Enforcement

SUBJECT: Response to Suggestion **

The issue of franchisors and franchisees has previously surfaced as a problem
in the collection of sales tax.

In any case, we require a franchisor to provide us with a list of franchisees
unless it is mandated by law (which it is not). What we have done in the past,
as is the case with direct sales marketers, is require the "franchisor" to
remit the tax rather than pass that responsibility down to the "franchisee", or
dealer in our case. In this manner we do not have to deal with the numerous
sole owners who continually go in and out of business, and the entity actually
collecting the tax becomes responsible for reporting and remitting.

In addition, if we require all "franchisors" to submit the names of their
"franchisees", we would be besieged with paperwork, and the cost to investigate
each and every business would be prohibitive.

The question then remains whether or not we want to follow-up on this issue and
mandate that ** remit the sales tax collected on behalf of its
dealers. This is a decision that should be made at the Executive level of this
agency, and deserves further consideration. It would also follow that if this
alternative was chosen, all sole owners currently permitted would have to be
canvassed to determine if they still need a permit.

In response to ** , we cannot require the reports he suggests
without legal authority. We may however want to pursue the option of having
** remit the taxes for their dealers. This option should be
addressed by Tax Policy in Legal Division.

Please let me know if I can give you any additional information.