Which parking-lot, street, debris-scraping, and ice-control cleaning services were taxable in Texas?

Plain-English summary

Effective December 6, 1991, the Comptroller said charges for sweeping, washing, or otherwise cleaning residential and nonresidential parking lots, sidewalks, driveways, drive-throughs, and delivery areas were taxable. That included power sweeping, power washing, and periodic parking-lot “maintenance,” which the letter classified as taxable restoration to cleanliness rather than preventive maintenance.

Charges for sweeping or cleaning public roads and streets were nontaxable. Scraping mud, dirt, or debris from public roads or streets was also nontaxable. Spreading salt or sand on driveways or sidewalks because of ice or other dangerous conditions was nontaxable.

Taxable services required collection unless the customer supplied valid exemption documentation. The letter discussed exemption certificates from government entities, direct-payment exemption certificates, and property managers acting as documented agents for the FDIC or RTC on property actually titled to those agencies.

The letter also gave local-tax sourcing instructions tied to the taxpayer's redacted city and the historical two-percent local-tax cap. Those rates and allocations are fact-specific and historical, so current local-tax rules should be checked separately.

What this means for you

Exterior cleaning businesses

The service description mattered. Routine cleaning that restored a lot to cleanliness was taxable, while public-road work and emergency ice-control spreading received different treatment.

Accountants and tax professionals

Keep customer exemption records and verify agency relationships for government-owned foreclosed property. Government connection alone was not enough without title and written-agency documentation.

Common questions

Was parking-lot power sweeping taxable? Yes.

Was parking-lot power washing taxable? Yes.

Was sweeping public streets taxable? No.

Was spreading salt or sand for icy conditions taxable? No, on the stated driveway and sidewalk facts.

Could an exempt government customer avoid tax? Yes, with the appropriate exemption certificate or other qualifying documentation described in the letter.

Citations and references

The letter quoted definitions of real-property maintenance and restoration but gave no rule or Code 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/9202L1155B07

Original ruling text

February 13, 1992

Dear **:

Thank you for your recent letter about the taxability of parking lot sweeping.
The activities of interest covered in your letter are restated below with our
response.

First, a general statement of taxability: Effective December 6, 1991, sales tax
is due on charges to customers for sweeping, washing, or otherwise cleaning
residential and nonresidential parking lots, sidewalks, driveways, drive-thrus,
and delivery areas.

Power Sweeping:

Response: Power sweeping is now a taxable service.

Power Washing:

Response: Power washing is now a taxable service.

Parking Lot Maintenance:

Response: Maintenance on real property is defined as "all scheduled periodic
work to keep in good working order by preventing the decline, failure, lapse,
or deterioration of the improvement."

Activities qualifying as maintenance of real property would be exempt from
sales tax.

However, we feel that the act of cleaning the parking lots periodically is more
properly defined as restoring the lot to cleanliness, which is taxable, than it
is to preventing its decline. "Restoration", for tax purposes, is defined as
"to bring back as near as can be to its original condition real property which
is still functional but which as faded, declined or deteriorated."

Parking lot "maintenance" is taxable.

Street Sweeping:

Response: Charges for sweeping or otherwise cleaning public roads and public
streets are not taxable.

Tractor scrapping:

Response: If this activity consists of scrapping mud, dirt, or other debris
from public roads or public streets, charges for this activity are not be
taxable.

Salt/sand Spreading:

Response: If this activity consists of spreading salt or sand on driveways or
sidewalks because of ice or otherwise treacherous conditions, charges for this
activity are not taxable.

LOCAL TAX: You stated that your place of business is in CITY A, Texas. The
proper tax rate for CITY A is 7 3/4% (6 1/4% state tax and 1 1/2% city tax).
You will always collect at least 7 3/4% tax on your taxable services. The city
tax collected will always be allocated to CITY A.

If you provide your services outside CITY A in any jurisdiction imposing local
tax, such as a county, special purpose district, or transit authority, you will
need to collect local tax for these jurisdictions also as long as the
additional tax, when added together with the 1 1/2% city tax you are already
collecting, does not exceed 2%. If the additional local tax would cause the
total local tax to exceed 2%, do not collect the additional tax. The examples
you provided in your letter are correct examples of when to collect local tax
and when the additional local tax should not be collected.

EXEMPTIONS: Sales tax must be collected on all your taxable services unless
your customer provides you with an exemption certificate in lieu of tax. If,
for example, you have a contract with the city to sweep a city-owned parking
lot, the city, as an exempt governmental entity, could provide you with an
exemption certificate in lieu of tax.

If a customer is a holder of a direct payment permit, your customer could
provide you with a direct payment exemption certificate in lieu of tax. You do
not need a copy of the customer's direct payment permit, BUT you do need a
properly completed direct payment exemption certificate showing the number from
their direct payment permit.

FORECLOSURE PROPERTY/GOVERNMENT OWNED: Your presumption should be that work on
foreclosed property is taxable. However, there are times when it may be
appropriate for your customer to give you an exemption certificate in lieu of
tax. For example, a property management company acting on behalf of the Federal
Deposit Insurance Corporation (FDIC) or the Resolution Trust Corporation (RTC)
may purchases your services tax free if:

1. The FDIC or RTC provides documentation to the management company showing
   that title to the property being managed was actually transferred to the FDIC
   or RTC.

2. The FDIC or RTC has entered into a written agreement with the management
   company that designates the management company as its agent and authorizes the
   management company to make purchases on its behalf. The management company must
   keep this documentation in its files for review in case of audit.

If the above criteria has been met between your customer and the FDIC/RTC, your
customer may provide you with an exemption certificate in lieu of tax on the
charges for taxable services you provide. The exemption certificate must state
that the purchases are made by or for the FDIC/RTC. The certificate may be
signed by either the FDIC/RTC or your customer.

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

If you have any questions or need more information, you or your customers may
call me toll free at 1-800-252-5555, extension 3-4666. The regular number is
512/463-4666. You may also write to the Tax Administration Division.

Sincerely,

Jo Ann Dieck
Tax Administration Division