Does a waste hauler have to charge Texas sales tax on industrial solid waste that's mixed in with regular taxable garbage, and what proof does a customer need to claim the exemption?

Plain-English summary

The Comptroller confirmed that disposing of industrial solid waste — the category defined in Chapter 361 of the Health and Safety Code — is not a taxable waste collection service in Texas. That holds true even when the industrial waste is co-mingled with taxable garbage or municipal solid waste in the same dumpster or collection service. See Comptroller Rule 3.356(a)(3)(E).

But mixing exempt and taxable waste together creates a proof problem. A customer that hands the waste hauler an exemption certificate is responsible for accruing tax on whatever portion of the charge represents the taxable garbage or municipal waste, using "any reasonable allocation... supportable by books and records" (Rule 3.356(h)). The Comptroller's letter walks through what "supportable" means: the generator should identify and document, in writing, the specific business processes that produce each type and amount of waste (the letter gives an example — a factory tallying office trash separately from raw-material packaging waste and separately again from manufacturing process waste, to show a 50/50 taxable/exempt split). Photographs of waste streams help too. What does not work: a single point-in-time look inside a dumpster by the generator or a consultant — the ruling calls that "not verifiable and insufficient."

Texas industrial waste is separately regulated by the Texas Natural Resource Conservation Commission (TNRCC), whose own rules (30 TAC § 335.503) require generators to classify every waste stream as Hazardous, Class 1, Class 2, or Class 3 at the point of generation, and to keep classification records under § 335.513. A business already keeping TNRCC-compliant records should have what it needs for a Comptroller audit; if TNRCC has granted a case-by-case recordkeeping variance, the ruling says to flag that directly to the Comptroller auditor — the exemption still has to be independently proven either way.

What this means for you

Waste haulers and waste collection companies

You don't owe sales tax on your charges for disposing of industrial solid waste, even where it's collected together with taxable garbage. But once the Comptroller determines your service includes disposal of taxable garbage or municipal solid waste, the burden shifts to the customer (the waste generator) to prove how much of the mixed stream was exempt — not to you as the collector.

Manufacturers and other waste generators

If you want to claim the industrial-waste exemption on a mixed collection service, keep contemporaneous, process-based documentation — production records, packaging counts, employee-headcount-based estimates of office trash — that lets you support a specific allocation percentage. A snapshot inspection of what's in the dumpster on a given day will not survive an audit.

Accountants and tax professionals

This ruling is really about evidentiary standards for a mixed exempt/taxable waste stream, not a substantive change to what counts as "industrial solid waste" (that definition still comes from Health and Safety Code Chapter 361). Pair it with your client's TNRCC waste-classification paperwork (30 TAC §§ 335.501-335.515, 335.521) — records kept for TNRCC compliance purposes double as the Comptroller's preferred proof of the exempt/taxable split.

Common questions

Q: Is all industrial waste disposal exempt from Texas sales tax?
A: Disposal of industrial solid waste as defined in Health and Safety Code Chapter 361 is not a taxable waste collection service — but disposal of garbage or municipal solid waste is taxable, and the exemption only covers the industrial-waste portion of a mixed stream.

Q: How do I prove what percentage of my waste is exempt if it's all collected together?
A: Document the actual business processes generating each waste type in writing (e.g., estimated pounds of office trash per employee per week vs. pounds of packaging waste from incoming supplies vs. manufacturing process waste), supported by your books and records. A one-time visual check of a dumpster's contents is not enough on its own.

Q: Do I need to separately track this for TNRCC purposes too?
A: Yes — TNRCC's own rules (30 TAC § 335.503) already require generators to classify every waste stream (Hazardous, Class 1, Class 2, Class 3) at the point of generation and keep documentation under § 335.513. Compliance with those rules should also support your sales tax exemption claim.

Q: Does this ruling apply to my specific waste stream?
A: Not automatically. This is a STAR letter ruling and, per Comptroller Rules 3.1 and 3.10, only binds the Comptroller as to the taxpayer it was issued to. It illustrates the Comptroller's reasoning and documentation expectations, but your facts may differ.

Citations and references

Statutes and rules:

• Comptroller Rule 3.356(a)(3)(E) (waste collection as a real property service; industrial solid waste exclusion)
• Comptroller Rule 3.356(h) (customer's obligation to allocate and accrue tax on mixed charges)
• Chapter 361, Texas Health and Safety Code (definition of industrial solid waste)
• 30 Tex. Admin. Code § 335.503(a)(1)-(2) (TNRCC waste classification and coding requirements)
• 30 Tex. Admin. Code § 335.513 (TNRCC documentation requirements)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200104170L

Original ruling text

April 11, 2001

Subject: Industrial Solid Waste

Dear **:

You asked Sales Tax Policy to respond to your question regarding what
documentation would the Comptroller's office find acceptable for determining
the percentage of excluded industrial solid waste when co-mingled with taxable
garbage or municipal solid waste.

The disposal of industrial solid waste as defined in Chapter 361 of the Health
and Safety Code, except for industrial solid waste that meets the definition of
garbage or municipal solid waste, is not a taxable waste collection service.
See Rule 3.356(a)(3)(E) on real property services. A customer that gives an
exemption certificate to the waste collection service provider is responsible
for accruing tax on that portion of the charge that represents taxable
services. The customer may use any reasonable allocation for reporting tax on
taxable services that is supportable by books and records. See subsection (h)
of the rule.

Industrial solid waste is subject to regulation by the Texas Natural Resource
Conservation Commission (TNRCC). The TNRCC in its administrative rules
requires that waste generators classify their waste streams. Specifically,
Section 335.503(a)(1) and (2), Waste Classification and Waste Coding Required,
states that:

(a) All industrial solid and municipal hazardous waste generated, stored,
processed, transported, or disposed of in the state shall be classified
according to the provisions of this subchapter.

(1) All solid waste shall be classified at the point of generation of the
waste. A generator may not dilute a waste to avoid a Class 1 classification;
however, combining waste streams for subsequent legitimate processing, storage,
or disposal does not constitute dilution and is acceptable. Wastes shall be
classified prior to, and following any type of processing or mixing of the
waste.

(2) All industrial solid and municipal hazardous waste shall be classified as
either:

(A) Hazardous;

(B) Class 1;

(C) Class 2; or

(D) Class 3.

In addition, the waste generator must keep documentation of the waste
classification in accordance with Section 335.513, Documentation Required, of
the TNRCC rules.

You may find the text of the TNRCC rules (Section 335.501-335.515 and Section
335.521) on Waste Classification at
www.tnrcc.state.tx.us/oprd/rules/pdflib/335r.pdf. You may also want to refer
to the TNRCC publication Guidelines for the Classification and Coding of
Industrial and Hazardous Wastes found at
www.tnrcc.state.tx.us/admin/topdoc/rg/022.pdf.

Therefore, waste generators who are in compliance with the TNRCC record keeping
requirements should have sufficient documentation, if audited by the
Comptroller, to establish what portion of their waste is nontaxable hazardous
waste, nontaxable industrial solid waste, and taxable garbage or municipal
solid waste. If the waste generator has been granted a case-by-case variance
by the TNRCC or there is a situation in which the TNRCC does not require the
waste generator to keep such records, then this should be brought to the
attention of the Comptroller auditor. However, the waste generator must still
establish what portion of their waste stream is nontaxable industrial solid
waste versus taxable garbage or municipal waste.

The waste generator can do this by identifying and documenting in writing those
processes that produce the various types and amounts of wastes. For example, a
waste generator that is a manufacturer determines that there are 150 office
employees and other employees that generate 100 pounds of office trash or
garbage (e.g., food leftovers, etc.) that is disposed of on a weekly basis.
The incoming purchases of raw materials and other supplies produce another 100
pounds of boxes and other packaging waste for disposal each week. The actual
output of industrial solid waste from the manufacturing process is determined
to be 200 pounds for disposal each week. Therefore, the waste generator can
show in this example that 50 percent of the waste that is disposed of is
nontaxable industrial solid waste and 50 percent is taxable garbage or
municipal solid waste by using process knowledge of the business operation.
Additional documentation that further supports the claim of exemption can be
kept; such as photographs of the amount and types of waste that are generated.
A single point in time "check" of the contents of a dumpster by a waste
generator or consultant is not verifiable and is insufficient information to
establish what portion of the waste is taxable waste versus nontaxable waste.

Once the Comptroller determines that a waste disposal service also includes the
disposal of garbage or municipal solid waste, then the burden of proving the
exemption shifts to the waste generator. I hope my explanation and example
help you in regards to what documentation that Comptroller auditors will review
to verify an exemption claimed for nontaxable industrial solid waste that is
co-mingled with taxable waste.

You may access Rule 3.356 online via The Window on State Government web site at
www.window.state.tx.us. Click on Sales Tax under Quick Links for the sales
tax rules.

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

You may call me toll free at 1-800-531-5441, ext. 5-0030. The direct line is
512/475-0030. You may also write to Tax Policy, Comptroller of Public
Accounts.

Sincerely,

David Somerville
Tax Policy Division

cc: Adina Christian
Frances Torres-Gonzalez