Is a waste management company's flat monthly fee for supplying and servicing portable toilets (port-a-potties) at a manufacturing plant taxable, and if so, which local tax applies?

Plain-English summary

A waste management company supplies portable toilets (port-a-potties) at a manufacturing plant for employees to use, and comes out twice a week to clean them, all for one flat monthly fee. The company asked whether that fee is taxable, and if so, which local tax rate applies. The Comptroller ruled the fee IS taxable -- as the rental of tangible personal property, not as a waste-removal service. Because it's sourced as a rental, local sales tax is based on the location of the rental company's own place of business, not the plant where the toilets sit. The ruling relies on Hearing No. 24,641 (1989), where a taxpayer had argued that providing and servicing portable toilets for contractors was really a nontaxable service (waste removal). The hearing judge disagreed: the "object of the charge" -- what the customer is really paying for -- is the rental of the toilets themselves, with the periodic servicing being incidental to that rental, not the other way around.

What this means for you

Portable toilet / waste management rental companies

Flat monthly fees that bundle equipment (toilets) with periodic servicing are taxed based on what the charge is really FOR. Here, that's the rental of tangible personal property, so the whole fee is taxable and local tax follows your business location, not your customer's job site.

Manufacturing plants, contractors, and other customers renting portable toilets

Expect the full monthly fee -- including the servicing/cleaning component -- to be taxed as equipment rental, and expect the local tax rate charged to reflect the rental company's location rather than your own site.

Accountants and tax professionals

This is a useful "object of the charge" analysis: when a fee bundles a taxable rental with an otherwise-nontaxable service (waste removal), the whole charge follows the PRIMARY purpose of the transaction as determined in a contested hearing (Hearing No. 24,641), not a component-by-component split.

Common questions

Q: Is a flat monthly port-a-potty fee that includes cleaning service taxable?
A: Yes, per this letter -- taxable as the rental of tangible personal property.

Q: Which local tax rate applies -- the plant's location or the rental company's?
A: Per this letter, local tax is based on the rental company's own place of business.

Q: Didn't a taxpayer once argue this is a nontaxable waste-removal service?
A: Yes, per this letter's citation to Hearing No. 24,641 (1989) -- but the hearing judge ruled the real object of the charge is the taxable toilet rental, not the incidental waste-removal service.

Citations and references

Rulings and hearings:

• Hearing No. 24,641 (1989) (portable toilet servicing is a taxable rental of tangible personal property)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9705457L

Original ruling text

May 8, 1997

Dear ***:

This is in response to your request for a ruling on the taxability of charges
by a waste management service company.

The company supplies port-a-potties at a manufacturing plant for the plant
employees. They will come out twice a week and clean them out. All this is
done for a flat monthly fee. Is the monthly fee taxable? If it is taxable
what determines local tax?

Response: The fee is taxable as the rental of tangible personal property.
Local tax is due based on the location of the rental company's place of
business. In Hearing No. 24,641 (1989), the taxpayer argued that providing and
servicing portable toilets for contractors is a nontaxable service. The judge
ruled that the object of the charge is not the service of removing waste, which
was a nontaxable service during the taxpayer's audit period, but the taxable
rental of toilets.

This opinion is based on the facts presented. Other facts though similar may
provide a different result.

I hope this information answers your questions. If you need additional
information, please
call me toll-free at 1-800-531-5441, extension 3-4502. The direct line is
512/463-4502. You may also write to Tax Policy Division, Comptroller of Public
Accounts. My Internet address is: [email protected].

Sincerely,

Gilbert Zamora
Tax Policy Division