An oilfield-services rental company rents out three different things -- mobile homes, trash trailers used to collect and remove jobsite garbage, and septic systems mounted on trailers. What tax (if any) applies to each, and who's on the hook if the customer doesn't pay it?

Plain-English summary

An oilfield-services rental company asked about the tax treatment of three different things it rents out, plus who's liable when a customer doesn't pay tax that was billed. The Comptroller addressed each rental type separately, since Texas taxes them under three completely different chapters of the Tax Code.

1. Manufactured (mobile) homes. These count as a "hotel" under Hotel Occupancy Tax Rule 3.161(a)(4), so they're subject to the 6% STATE hotel occupancy tax (Chapter 156), not sales tax (local hotel tax is collected separately by cities/counties, not the Comptroller). A rental under 30 consecutive days owes the tax. A customer can qualify as a tax-exempt "permanent resident" if they commit IN ADVANCE, in writing, to renting for at least 30 consecutive days with no interruption in payment — but without that advance written commitment, tax is due on at least the first 30 days regardless of how long the stay actually turns out to be.

2. Trash trailers used to remove jobsite garbage. This isn't a rental of equipment at all in the Comptroller's eyes — it's a taxable WASTE DISPOSAL SERVICE under Chapter 151, so Texas limited sales tax applies to the ENTIRE charge, including the portion billed for the trailer itself. Separately, the trailer itself owes motor vehicle sales tax when the rental company purchases it, since it's being used to provide a taxable service.

3. Septic systems mounted on trailers. These fall under the MOTOR VEHICLE RENTAL TAX (Chapter 152) on the whole charge (the trailer/system plus the septic service): 10% for a single contract of 1-30 days, 6.25% for 31-180 days, and NOT taxable at all if the contract runs longer than 180 days (that makes it a "lease" rather than a rental) — though in the lease case, the rental company itself owes tax when it originally purchased the vehicle.

On unpaid tax: regardless of which of the three taxes applies, Texas law makes the business (not just the customer) responsible for remitting the tax — if you billed a customer for tax and they never paid it, you still owe the Comptroller.

What this means for you

Oilfield and jobsite equipment rental companies

Don't assume one blanket "equipment rental" tax rule applies across your whole fleet — mobile homes, trash-hauling trailers, and septic trailers each fall under a different Tax Code chapter with different rates and different exemption rules. Sort your invoicing by rental type accordingly.

Businesses offering month-plus mobile home rentals

Get the 30-day-plus commitment IN WRITING and IN ADVANCE if you want your customer to qualify as an exempt "permanent resident" — without that advance written commitment, you owe hotel tax for at least the first 30 days no matter how the rental actually plays out.

Anyone worried about tax liability on unpaid customer invoices

This letter is a clear reminder that billing a customer for tax you never actually collect doesn't get you off the hook — the state can still hold your business liable for remitting it.

Common questions

Q: Is renting out a mobile home the same as renting regular equipment for sales tax purposes?
A: No, per this letter — a manufactured home rental is subject to state hotel occupancy tax, not sales tax.

Q: Is trash-trailer rental just equipment rental, or something else?
A: Per this letter, when the company itself collects and removes the trash, that's a taxable waste disposal SERVICE — sales tax applies to the entire charge, including the trailer portion.

Q: What if my customer doesn't pay the tax I billed them?
A: Per this letter, your business remains responsible for remitting the tax to the state regardless of whether you actually collected it from the customer.

Citations and references

Statutes and rules:

• Tex. Tax Code Chapter 156 (Hotel Occupancy Tax); § 156.053 (collection duty on the hotel operator)
• Tex. Tax Code Chapter 151 (waste disposal as a taxable service)
• Tex. Tax Code Chapter 152 (motor vehicle rental tax rates and lease exclusion)
• 34 Tex. Admin. Code Rule 3.161(a)(4) (manufactured home included in "hotel" definition)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200110576L

Original ruling text

October 30, 2001

Dear **:

Thank you for your letter about sales tax invoiced, but not paid by your
customers. I am pleased to be of assistance.

You state that your business rents mobile homes, trash trailers (trailers with
steel boxes attached), and septic systems permanently mounted on trailers
primarily for use at oilfield sites. You mention that the average rental is
for 45 days.

Presumably, the mobile homes you rent are manufactured homes labeled by the
Texas Department of Housing and Community Affairs and are not mobile offices or
travel trailers. Manufactured Housing Tax is imposed only on the initial
purchase. The rental of a manufactured home may be subject to the Texas Hotel
Occupancy Tax under Tax Code Chapter 156. The rentals of mobile offices or
travel trailers are taxed differently.

Section (a)(4) of Hotel Occupancy Tax Rule 3.161 Definitions, Exemptions, and
Exemption Certificate states that a manufactured home is included in the
definition of a hotel and, consequently, is subject to the hotel tax and not to
the Texas Sales and Use Tax.

If your customer rents a mobile home for less than 30 consecutive days, hotel
occupancy taxes are due. Your customer may qualify for an exemption from tax
as a permanent resident provided the mobile home is rented for at least 30
consecutive days. To qualify for the exemption from tax, there must be no
interruption of payment during that period and your customer must notify you at
the beginning of the rental (in advance) of their intention to rent the mobile
home for at least 30 consecutive days. Without a written commitment or binding
contract indicating an intention to rent for at least 30 consecutive days, then
the state hotel occupancy tax will be due for the first 30 days; thereafter,
your customer will be exempt.

The Comptroller's Office only collects the 6% state portion of the hotel
occupancy tax. Local authorities (cities and counties) are responsible for the
collection of local hotel occupancy tax.

Enclosed is a hotel occupancy tax questionnaire for your convenience if the
contracts for the rentals do not qualify for exemption under the permanent
resident provision. If you have questions about hotel occupancy tax or the
questionnaire, you may contact Don Dillard of our Miscellaneous Tax Policy
Section toll-free at 1-800-531-5441, extension 6-6171.

In response to your concern about who will be responsible for taxes on the
rental of a manufactured home if billed to a customer, but not paid by the
customer, Tax Code Section 156.053 states:

A person owning, operating, managing, or controlling a hotel shall collect for
the state the tax that is imposed by this chapter and that is calculated on the
amount paid for a room in the hotel.

Consequently, your business is responsible for remitting the hotel tax on these
charges, even if the tax was not collected from the hotel's guests.

The following information applies only to the rental of the flatbed trailers
used to collect and remove household trash.

In a recent conversation with Curt Swenson of our Sales Tax Policy Section,
your representative stated that your company removes the trash from the
jobsite. Under Tax Code Chapter 151, this service you are providing is a
taxable waste disposal service and, as such, Texas limited sales tax is due on
the entire charge for the waste disposal service including the charge for the
trailer. Additionally, you should know that motor vehicle sales tax is due at
the time of the purchase of a trailer to be used in providing a taxable service
subject to sales tax.

The following information is specific only to the rental of the septic systems
attached to flatbed trailers. Their rental (the entire charge for the septic
system on the trailer and the separately stated charge for the septic service)
is subject to the Motor Vehicle Rental Tax under Chapter 152 of the Tax Code.
The tax rate for a motor vehicle rental under a single contract for 1-30 days
is 10%. The tax rate for a motor vehicle rental under a single contract for
31-180 days is 6.25%. A qualified motor vehicle rental permit holder may
register their motor vehicle tax deferred. A contract exceeding 180 days is
termed a lease and is not taxable. The vendor would owe tax on the purchase of
the leased motor vehicle.

Regarding the limited sales tax and the motor vehicle rental tax, the Tax Code
allows the Comptroller to hold either the purchaser or the seller liable for
unpaid tax. The Tax Code also provides that the tax becomes part of the sales
price and is a debt of the purchaser to pay to the seller. The tax is
recoverable at law in the same manner as the original sales price.

You may want to show the customer this letter or suggest that he write to this
office and request an opinion of the taxability of the items he is renting for
his business.

The entire text of the Tax Code, a complete set of rules, and other tax
information are available through our website at .

This opinion is based on the information presented. If there are additional or
different facts, the opinion could change.

If you have any questions or need more information, I will be glad to help you.
You may e-mail me at , or you may call me toll-free
at 1-800-531-5441, extension 3-4622.

Sincerely,

Stefanie B. Medack
Tax Policy Division