Is providing and servicing air freshener/deodorizer dispensers installed in a customer's building a taxable service in Texas, and can the dispenser, batteries, and liquid be bought tax-free for resale?

Subject

Air Freshener/Deodorizer Dispenser Service Installed In Customer'S Building — Taxable Janitorial Service; Dispenser, Batteries, And Liquid May Be Purchased For Resale

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9311L1267G01

Plain-English Summary

Company A buys air freshener/deodorizer dispensers and installs them in customers' buildings (in restrooms), under contract with the building manager. Company A keeps ownership of the dispenser at all times — it services each unit by replacing the battery and refilling the liquid, and when a customer no longer wants the service, Company A picks up the unit, refurbishes it, and installs it at another building.

The Comptroller (Bettie Peterson, Tax Administration Division) ruled that this arrangement is a taxable janitorial/custodial service under Comptroller's Rule 3.356, and that this type of service has been taxable since October 2, 1987. Because it is a taxable service, Company A may issue a resale certificate when it buys the dispenser, the batteries, and the liquid filling — it does not pay sales tax on those inputs. Instead, sales tax must be charged on the total charge billed to the customer for the service.

The letter also cleans up conflicting prior guidance. An earlier letter written by Curt Swenson on March 7, 1988 had given an incorrect answer, but the Comptroller noted that the taxpayer's own customers could not rely on that letter to avoid their own tax liability — only the taxpayer who received it could rely on it, and even that reliance ends as of the date of this new letter. The Comptroller also pointed out that a separate, earlier letter from Tom Soto dated January 25, 1988 had already correctly told the taxpayer the service was taxable. That January 1988 letter (reproduced at the end of this ruling) explains that janitorial/custodial operations of this kind are real property services under Comptroller's Rule 3.3565(4)(A), taxable on the total amount billed to the customer, with a resale certificate available for the deodorizers transferred as part of the service.

What This Means For You

If you provide and service air freshener, deodorizer, or similar dispenser units installed in customers' buildings: This letter treats that activity as a taxable janitorial/custodial real property service. You charge — and your customer pays — sales tax on the full amount you bill for the service, not just on a rental or product component.

If you buy the dispensers, batteries, or refill liquid used in providing that service: You can give your supplier a resale certificate for those items instead of paying tax at purchase, because the cost of those items is being resold to your customer as part of your taxable service charge.

If you're a customer receiving this kind of service: You cannot rely on a letter ruling that was issued to your service provider, even if that letter (like the Curt Swenson letter mentioned here) said something favorable — only the original recipient of a STAR letter can rely on it, and the Comptroller can correct or retract that reliance going forward, as it explicitly did here.

Scope note: The ruling does not state a specific effective date beyond confirming the service "has been taxable since October 2, 1987," and it does not address any other type of dispenser service or any effective-date rule beyond that.

Q&A

Q: Is a service that installs and maintains air freshener dispensers in a customer's restrooms taxable in Texas?
A: Yes. The Comptroller classified this as a taxable janitorial/custodial service under Rule 3.356, taxable since October 2, 1987.

Q: Can the company buy the dispensers, batteries, and liquid tax-free?
A: Yes — the letter says the company "may issue a resale certificate on the air freshner, batteries, and the liquid filling at the time of purchase."

Q: What does the company have to charge sales tax on?
A: "The total charge to each of your customers is subject to sales tax," per the letter.

Q: The taxpayer had an earlier letter (from Curt Swenson, March 7, 1988) saying something different. Does that still apply?
A: No. The Comptroller states that letter "is not correct" and that, effective the date of this new letter (November 8, 1993), the taxpayer should disregard it. The letter also clarifies that only the original recipient could ever have relied on it — the recipient's customers could not use it to avoid their own tax liability.

Q: Was there any earlier correct guidance on this same question?
A: Yes. A January 25, 1988 letter from Tom Soto (reproduced at the end of this ruling) had already told the taxpayer that this same janitorial/custodial service was taxable as a real property service under Comptroller's Rule 3.3565(4)(A), with tax due on the total charge billed and a resale certificate available for the deodorizers installed as part of the service.

Original ruling text

November 8, 1993

Dear *****:

This is in response to your letter dated October 26, 1993, regarding
sales tax as it applies to your business.

FACTS: Company A buys an air freshner dispenser and installs it in a
customer's building. The air freshner remains the property of Company A.
We contract with a building manager to provide the air freshners in the
restrooms. Company A services the dispensers by renewing the battery and
refilling the liquid. When a building no longer wants the service, we
pick-up the unit, refurbish it and install it in another location.

RESPONSE: The service as described above is taxable as a
janitorial/custodial service covered under Rule 3.356. This
has been taxable since October 2, 1987. You may issue a resale
certificate on the air freshner, batteries, and the liquid
filling at the time of purchase. The total charge to each of your
customers is subject to sales tax.

Although the response given to you in Curt Swenson's letter dated
March 7, 1988 is not correct, your customers cannot use a letter
that was written to you in order to avoid their tax liability. Only
you may rely on that letter. Effective the date of this letter, you
should disregard Curt's letter.

Records here show Tom Soto wrote you a letter dated January 25, 1988
advising you that the service provided by Company A was taxable.

If you have any questions or need more information, please write or
call me toll free at 1-800-531-5441, extension 50330, or 512-475-0330.

Sincerely,

Bettie Peterson
Tax Administration Division

January 25, 1988

Dear ****:

On behalf of Mr. Bullock, I hope you'll accept my apology for the
delay in answering your question involving changes in the sales tax
law. This isn't the way we normally do business.

Our people-were, and still are, swamped by a deluge of inquiries as
they attempted to interpret provisions of the new law and draft rules
which would not adversely impact businesses. In many instances, an
answer to a question just wasn't available when the question arrived.

The janitorial/custodial operations you describe are considered to be
real property services [See Comptroller's Rule 3.3565 (4)(A)]
(enclosed). You should pay tax on the total charge that is billed to
the customer. However, you may give your suppliers a resale
certificate (instead of tax) for the deodorizers which you install
(transfer) as a part of your taxable service.

I am also enclosing the tax bulletin on janitorial services for your
information.

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

Please feel free to contact me if you have additional questions. You
may write me, call toll-free 1-800-252-5555 from anywhere in Texas or
phone 512/463-4600.

Sincerely,

Tom Soto
Tax Policy Division

NOTE: Previous Accession Number 9311009L.5 and/or 9311009L