As the dust settles from an eventful 2013, it was anybody’s guess which topic would dominate the early 2014 sales tax headlines. As January winds down, an unlikely underdog has emerged from a relatively unglamorous, but nonetheless indispensible industry, namely, the portable toilet rental and human waste disposal industry.
Indeed, the issue of whether this is a true “service” industry for sales and use tax purposes, or whether the business of leasing portable toilets, i.e. tangible personal property, is the true object of such transactions, are among those that have re-emerged in early 2014.
The nature of things dictates that rented portable toilets will likely need to be cleaned upon expiration of a lease agreement. For convenience purposes, these cleaning and disposal services, as well as delivery, maintenance and removal services are often bundled with the rental transaction. In the world of sales and use taxes, services are generally nontaxable while rental or lease agreements are generally subject to the tax.
However, because a discussion of the day-to-day operations of this industry does not qualify as a pleasant dinner conversation, developments addressing the proper application of sales and use taxes on this industry usually do not garner much attention or capture too many headlines.
Therefore, it is fairly notable when, in the same month, more than one jurisdiction publishes any sort of guidance or ruling addressing this particular issue. But whether by coincidence or not, January 2014 has, thus far, produced an unusual amount of activity in this regard.
South Carolina kicked things off with an administrative law court ruling that applied the “true object” test to the portable toilet rental transaction. The court, relying on well-established state law and guidance, found little trouble in ruling that the true object was for the rental or lease of the toilets, or, more specifically, “for privacy, the four walls, the floor, and the facilities.” Thus, the gross proceeds from the rental and servicing of the toilets were subject to sales tax.
While the South Carolina ruling likely caught no one off guard, about a week and a half later, the Arizona Department of Revenue issued a similar decision regarding unpaid transaction privilege taxes. The DOR, after analyzing the specifics of the porta-john rental transaction, determined that the nature of the transaction came within the meaning of the term “renting” under the tax’s personal property rental classification. Thus, citing the absence of any specific exemption or exclusion, the DOR determined that charges for the delivery, maintenance, and pick-up of the porta-johns were included in the gross income from the rental business and were thus subject to the tax.
In addition, on the same day as the Arizona DOR decision, North Carolina issued guidance on optional service contracts for portable toilets. According to the guidance, effective January 1, 2014, the state’s sales and use tax rates apply to the sales price of optional service contracts sold to maintain or repair a portable toilet.
The portable toilet rental industry often takes a backseat to the industries it accommodates. Indeed, like a long snapper in football, until something bad happens, the porta-john and human waste disposal industry’s contributions go largely unnoticed. As 2014 unfolds, other, more publicized topics will likely control the sales tax headlines. But it’s possible that other developments concerning the application of sales tax on portable toilet rentals will continue to capture our attention. Or, it’s also possible that we’ve reached the depths, or shall I say, the bowels, of our interest in the matter.
On a less nauseous note, this week’s Weekly State Tax Report highlights some of the more publicized and important 2013 state tax developments, and further provides predictions of what awaits in 2014. For a video discussing cloud computing, one of the more popular 2013 topics, click here .
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