If a pay-phone servicer charges one flat monthly fee that covers both coin collection and minor incidental repairs, is any part of that fee subject to Texas sales tax?

Subject

Pay Phone/Coin — Operated Telephone — Coin Collection And Minor Repair/Cleaning Performed By Third Party

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9403L1292G12

Plain-English Summary

An independent pay-phone provider hired individuals around the state under contracts to collect coins from pay phones each month. During those visits, the workers also performed minor incidental repairs "as needed" — things like clearing coin jams and replacing handsets — and cleaned the phones. The provider paid a single flat fee per phone per month under these contracts, and the main purpose of the contract was coin collection. A time study found that, on average, $2 of each $45 monthly fee represented the incremental time spent on repair work, and the taxpayer asked whether that $2 could be used as an allocation basis to calculate the taxable portion.

The Comptroller ruled that cleaning, replacing parts, and clearing coin jams are all taxable repair, remodeling, maintenance, or restoration services under Tex. Tax Code § 151.0101(a)(5). Separately stated charges for coin collection are not taxable. However, the ruling does not endorse using a time-study allocation percentage to split a single flat fee — it states that if a single charge is made for both the taxable repair services and the (nontaxable) coin collection, the total charge is taxable. In other words, the fee has to actually be broken out as separate stated charges on the bill; an after-the-fact allocation formula based on estimated time spent isn't a substitute for separately stating the charges.

What This Means For You

If you provide pay-phone servicing (or similar bundled maintenance/collection services) in Texas: Minor repair work such as cleaning, replacing parts, and clearing jams is taxable. Coin (or similar receipts) collection by itself is not.

If you want only the repair portion to be taxed: You must separately state the repair charge from the collection charge on the invoice or contract. A single flat combined fee — even if you can show through a time study what percentage was attributable to repair — will be treated as fully taxable because the taxable and nontaxable components are not separately stated.

If you currently bill a single flat monthly fee covering both services: Under this ruling, the entire fee is subject to sales tax, not just an allocated portion, unless you restructure billing to separately state the repair/cleaning charge from the coin-collection charge.

Q&A

Q: Is coin collection from pay phones subject to Texas sales tax?
A: No. The ruling states that separately stated charges for collecting coins are not subject to tax.

Q: Is the minor repair and cleaning work done during coin collection visits taxable?
A: Yes. Cleaning, replacing parts, and clearing coin jams fall under Tex. Tax Code § 151.0101(a)(5), which imposes sales tax on charges to repair, remodel, maintain, or restore tangible personal property.

Q: Can I use a time study (e.g., "$2 of every $45 is for repair work") to calculate just the taxable portion of a flat combined fee?
A: The ruling addresses this by stating that if a single charge is made for both the taxable service and coin collection, the total charge is taxable. The response does not authorize an allocation/averaging method based on a time study in place of separately stating the charges.

Citations

• Tex. Tax Code § 151.0101(a)(5) (imposing sales tax on charges to repair, remodel, maintain, or restore tangible personal property)

Original ruling text

March 21, 1994

Dear *:

Thank you for your recent letter which is restated in part with
response below.

We have a client who is an independent pay phone provider. He executes
agreements with individuals around the state to cover coin collection
and incidental repair work done at the time the coins are collected. A flat
fee is paid per phone per month. When the phones are collected, they are
cleaned and small repairs such as coin jams and handset replacements are
performed on an "as needed" basis. The main intent of the contract is for
coin collection. Since a flat fee is paid per phone per month, can an
allocation or averaging method be used to calculate the taxable amount of
"repair work". A detailed study of the amount of time for collections
versus the incremental time for the minor repairs was conducted and found
that $2 out of $45 is for repair work. Can this basis be used to allocate
the appropriate amount to tax?

Response: Tax Code Section 151.0101(a)(5) imposes sales tax on charges to
repair, remodel, maintain, or restore tangible personal property. This would
include the functions of cleaning, replacing parts, and, clearing coin jams.
Separately stated charges for collecting coins are not subject to tax.The
total charge is taxable if a single charge is made for taxable services and
coin collection.

This opinion is rendered based on the facts you submitted. Other facts,
though similar, may yield different results.

If you have questions or need more information, please call or write. You
may reach me by calling toll free, (800) 531-5441 (ext.3-4680). My direct
line number is (512) 463-4680. The number for FAX transmissions is (512)
475-0900. You may write to me in care of Tax Administration Division.

Sincerely,

Al Van Allen
Tax Administration Division

NOTE: Previous Accession Number 9403171L