Is the fee an amusement park guest pays to use an electronic storage locker a taxable rental of tangible personal property, or a nontaxable storage service -- and did the Comptroller's answer change from an earlier ruling to the same taxpayer?

Plain-English summary

A concession operator installs and runs electronic storage lockers at amusement parks under a revenue-sharing License Agreement with the park owner. Park guests pay a fee, separate from admission, to store belongings in a locker while they visit the park. The operator — not the park — owns, designs, fabricates, installs, staffs, maintains, and repairs each locker concession.

This taxpayer had asked the Comptroller the same underlying question twice. In 2014, on a request framed around whether the lockers had become part of the amusement park's real property, the Comptroller issued a general information letter concluding the locker fee was taxable as a rental of tangible personal property. In 2015, the taxpayer came back with a different legal theory — arguing the fee was really payment for a nontaxable storage service, not a TPP rental at all.

This time, the Comptroller agreed with the taxpayer, and the reasoning matters as much as the result. A taxable "lease or rental" of tangible personal property requires that possession — specifically, operational control and exclusive use — transfer to the customer for a set period. Here it doesn't: the operator, not the guest, controls who can access which locker (via four-digit codes tied to admission and park hours), staffs and can enter the lockers as needed, and retains ongoing operational control over the whole system. Because the guest never gets exclusive possession or operational control, the transaction isn't a rental of tangible personal property — it's a service (safeguarding the guest's belongings).

Since it's a service, the next question is whether it's one of Texas's specifically enumerated taxable storage services — because services are nontaxable by default unless the legislature specifically taxes them. The Comptroller listed the four enumerated taxable storage categories (private-club amusement storage, fur storage, motor vehicle parking/storage, and data storage bundled into data processing) and found electronic amusement-park lockers fit none of them. So the fee is a nontaxable storage service. That conclusion also meant it isn't a real property rental (since it's a service, not a TPP rental, the real-property-rental theory from the operator's original argument was moot), and the operator does not qualify for a resale exemption on the lockers it purchases, since a resale exemption requires reselling a taxable service or property — and this service isn't taxable.

Critically, the Comptroller flagged that this new determination reverses its own prior position (the 2014 letter) and will be applied only prospectively — i.e., it doesn't retroactively excuse tax the operator may have collected/remitted under the earlier, contrary guidance.

What this means for you

Amusement park, water park, and similar attraction locker/storage concession operators

If your locker system works like this one — the operator, not the guest, retains operational control and can access lockers as needed, with access tied to admission/hours rather than truly exclusive customer possession — this ruling supports treating the fee as a nontaxable storage service. But note the reversal-is-prospective-only caveat: if you were collecting tax under prior guidance, don't assume you can stop or seek refunds without your own analysis.

Businesses that got contrary guidance from the Comptroller in the past

This ruling is a real-world example that the Comptroller can and does change its position on the same fact pattern for the same taxpayer when presented with a sharper legal theory — but the taxpayer had to request a new ruling to get the benefit; the change wasn't automatic or retroactive.

Accountants and tax professionals

The operational-control/exclusive-possession framework here (citing Combs v. Chevron and the underlying Hutchins v. Masterson three-part fixture test) is the key analytical tool for any tangible-personal-property "service vs. rental" question in Texas — the fact that a customer physically uses an item doesn't make the transaction a rental if the provider retains meaningful operational control.

Common questions

Q: Why did the Comptroller reach a different conclusion than its 2014 letter to the same taxpayer?
A: The 2014 request focused on whether the lockers had become part of the park's real property (they hadn't, so the fee was ruled a taxable TPP rental). The 2015 request presented a different theory — that the transaction was really a storage service, not a rental at all — and under that framework, the Comptroller found the guest never gets exclusive possession or operational control, so it isn't a taxable rental.

Q: Does this ruling apply retroactively to taxes already collected?
A: No. The Comptroller explicitly stated this determination is a change from its previous analysis and will be applied only prospectively.

Q: Is the operator entitled to buy the lockers tax-free under a resale exemption?
A: No. Since the operator is providing a nontaxable service (not reselling a taxable service or taxable tangible personal property), the resale exemption under Section 151.302 doesn't apply to its locker purchases.

Q: Can another locker or storage concession operator rely on this ruling?
A: No. This is a private letter ruling binding only on the Comptroller as to this taxpayer and these facts, and cannot be relied upon by any other taxpayer — though the operational-control analysis illustrates the general framework the Comptroller applies.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.005(2) (sale includes lease/rental of tangible personal property)
• Tex. Tax Code § 151.006(c) (sale for resale definition/exclusion)
• Tex. Tax Code § 151.051 (imposition of sales tax)
• Tex. Tax Code § 151.0101(a)(1), (3), (4), (12) (enumerated taxable storage services)
• Tex. Tax Code § 151.302 (sale for resale exemption)
• 34 Tex. Admin. Code § 3.294(a)(2) (lease or rental definition)
• 34 Tex. Admin. Code §§ 3.298(b) (private club amusement storage), 3.310(b)(5) (fur storage), 3.315 (motor vehicle parking/storage), 3.330 (data processing/data storage)
• 34 Tex. Admin. Code Rule 3.1 (Private Letter Rulings and General Information Letters)
• 34 Tex. Admin. Code Rule 3.10 (Taxpayer Bill of Rights; detrimental reliance)

Prior authority discussed:

• STAR Document No. 9411681L (lockers held an improvement to realty, not taxable)
• STAR Document No. 9003L0992C10 (lockers held tangible personal property, taxable)
• Hutchins v. Masterson, 46 Tex. 551 (1887) (three-part fixture/annexation test)
• Combs v. Chevron, Inc., 319 S.W.3d 836 (Tex. App. 2011, pet. denied) (operational control/exclusive possession test for rentals)
• Comptroller's Decision No. 40,812 (2003) (cited with approval in Combs)
• Taxpayer's own 2014 general information letter (superseded/reversed prospectively by this ruling)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/201603743L

Original ruling text

March 14, 2016

RE: Private Letter Ruling No. 151870553

Dear *****:

Thank you for your private letter ruling request dated June 29, 2015, regarding
the taxability of lockers used by amusement park patrons for a fee. We issue
this private letter ruling in accordance with Rule 3.1 [ENDNOTE 1]. Private Letter
Rulings and General Information Letters. Detrimental reliance relief is provided in
accordance with Rule 3.10, Taxpayer Bill of Rights.

We issue this private letter ruling based on the facts presented and without
any independent verification of the terms used or activities described.

Requested Rulings:

1. Are the locker rentals a nontaxable storage service or the nontaxable rental
   of realty?

2. Is the leasing company entitled to a resale exemption?

Relevant Facts Presented:

Taxpayer provides daily electronic storage lockers for guests at amusement parks
owned by COMPANY A. Taxpayer operates under a License Agreement with
COMPANY A that grants Taxpayer the authority to install, manage, and operate
the lockers on COMPANY A's’ premises.

The License Agreement is a revenue sharing agreement under which COMPANY A
does not purchase or lease the lockers placed on its premises. Guests at the
amusement parks pay a fee for the use of an electronic storage locker separate
from the park admission fee.

Taxpayer is responsible for the design, fabrication, installation, operation,
and management of each contracted locker concession. Taxpayer is required to
maintain and keep all lockers in good repair and condition, with such repairs
at Taxpayer’s cost and expense. Taxpayer also staffs the locker concession with
employees responsible for operating the locker concession.

Taxpayer submitted its first private letter ruling request in 2014, requesting
guidance on the taxability of the locker rentals to the park guests. In the
2014 request, Taxpayer sought guidance regarding whether the fee for the use of
the lockers was subject to Texas sales tax as the rental of tangible personal
property or not subject to Texas sales tax as the rental of real property.

Taxpayer asserted the lockers became incorporated into real property such that
they lost their identity as tangible personal property and, therefore, were not
subject to Texas sales tax.

On April 25, 2014, the Comptroller issued a general information letter to
Taxpayer advising that the fee for the use of the lockers is subject to Texas
sales tax as the rental of tangible personal property.

On June 29, 2015, Taxpayer submitted this second private letter ruling
request regarding the fee for the lockers. Taxpayer asserts in the second
request that the electronic locker concessions are not the rental of tangible
personal property but the provision of a nontaxable service.

Rulings and Analysis:

The Tax Code imposes taxes on certain sales [ENDNOTE 2] and services [ENDNOTE 3].
Leases or rentals of tangible personal property qualify as taxable sales [ENDNOTE 4].
The provision of a service is not taxable unless specifically enumerated [ENDNOTE 5]
It must be determined, .therefore, whether the amusement park guest is renting tangible
personal property or purchasing a storage service.

The Comptroller has previously stated that locker rentals may be taxable or not
taxable depending on whether or not the lockers remain tangible personal
property [ENDNOTE 6]. The Comptroller applied the three-part test [ENDNOTE 7] set
out in Hutchins v. Masterson [ENDNOTE 8] when it issued its first response to Taxpayer
and determined the lockers remained tangible personal property, in part because the
License Agreement between Taxpayer and COMPANY A clearly intended the lockers be quickly
removed upon (a) a decision to relocate the locker concession or (b) termination of the
Agreement whether prior to or at the conclusion of the License Agreement term.

Storage Service

The Comptroller defines a lease or rental as a transaction, by whatever name
called, in which possession but not title to tangible personal property is
transferred for a consideration [ENDNOTE 9]. In order for the electronic locker
concessions to be the rental of tangible personal property, possession of the
lockers must transfer to the amusement park guest.

Neither the Tax Code nor the Comptroller’s rules define the term “possession”
as it pertains to property rentals. The Comptroller has stated, however, that
“[a] key element of ‘possession’ is ‘operational control’ over the tangible
personal property”. . . and that a “lessee must exercise operational control of the leased
property in order to take possession thereof.” [ENDNOTE 10] Additionally, an “imperative
condition of a lease is the exclusive possession of the property by the lessee
for a definite term.” [ENDNOTE 11]

To determine operational control, the Comptroller “will consider all of the
facts and circumstances of a transaction in order to determine which party is
using, controlling, or operating the tangible personal property.” [ENDNOTE 12] The
amusement park guest must use, control, or operate the electronic locker for
the electronic locker to be the rental of tangible personal property.

Taxpayer primarily uses, controls, and operates the electronic lockers for the
benefit of the amusement park guest. Taxpayer is responsible for the
installation, maintenance, repair and condition of the electronic lockers and
the payment kiosks at all times pursuant to the License Agreement. Personnel
are on hand to assist amusement park guests, oversee access to the electronic
lockers, and maintain the electronic lockers and surrounding areas.

The amusement park guest places his belongings in an electronic locker to
safeguard his belongings. Taxpayer, however, controls access to the electronic
lockers through various means including adherence to amusement park policies
and rules (such as park admittance requirements), operating hours consistent
with amusement park operating hours, and the issuance of four-digit codes to
individual amusement park guests for a specific period of time.

The electronic lockers are physically operated by means of the applicable code
that controls access to the assigned storage space. The amusement park guest
receives the appropriate code when he pays either an attendant or a payment
kiosk. Taxpayer can still access any electronic lockers as needed, however, which
negates the amusement park guest’s exclusive possession of the electronic locker.

The Comptroller determines that the electronic locker concession is a service
because neither operational control nor exclusive possession of the electronic
lockers transfers to the amusement park guest.

The electronic lockers are purchased by park guest as a place to store his
belongings while visiting the park. Storage services are subject to sales tax
to the extent they are specifically enumerated by statute. Enumerated taxable
storage services include:

• storage fees in connection with an amusement service when charged by a
  private club for which membership convey special status, privilege or
  membership classification; [ENDNOTE 13]

• fur storage; [ENDNOTE 14]

• motor vehicle parking and storage fees; [ENDNOTE 15] and

• data storage fees included within the definition of data processing. [ENDNOTE 16]

The electronic locker concession is not one of the enumerated taxable storage
services; therefore, the electronic locker concession is a nontaxable storage
service.

Real Property Rental

The electronic locker concession is not the rental of real property, based on
the Comptroller’s determination that the electronic locker concession is a
nontaxable storage service.

Sale for Resale Exemption

Taxpayer is not eligible for the sale for resale exemption [ENDNOTE 17] based on the
determination that the electronic locker concession is a nontaxable storage
service. By definition, a sale for resale “does not include the sale of
tangible personal property or a taxable service to a purchaser who acquires the
property or service for the purpose of performing a service” that is not
subject to sales and use tax [ENDNOTE 18].

Summary

The Comptroller’s determination that the electronic lockers are a nontaxable
service demonstrates a change from previous analyses of lockers and will only
be applied prospectively.

If you have any questions about this response, please email us through our
website at https://www.comptroller.texas.gov/taxhelp/ and reference Private
Letter Ruling #151870553.

Tax Policy Division – Indirect Taxes
State Comptroller of Public Accounts

ENDNOTES

1. Unless otherwise indicated, all references to “Section” are to the Texas Tax
   Code, and all references to “Rule” are to Title 34 of the Texas Administrative Code.

2. Tex. Tax Code Section 151.051.

3. Tex. Tax Code Section 151.0101.

4. Tex. Tax Code Section 151.005(2).

5. Tex. Tax Code Section 151.0101

6. See, e.g., STAR Document No. 9411681L (holding lockers were an improvement to
   realty and not subject to sales tax) and STAR Document No. 9003L0992C10
   (holding lockers remained tangible personal property and subject to sales tax).

7. The three parts of the test analyze (a) the real or constructive annexation
   of the article in question, (b) the fitness or adaptation of the article to the uses
   or purposes of the realty with which it is connected, and (c) the intent of the parties).

8. Hutchins v. Masterson, 46 Tex. 551 (1887).

9. 34 Admin. Code Section 3.294(a)(2).

10. Combs v. Chevron, Inc., 319 S.W.3d 836 (Tex. App. – 2011, pet denied) citing,
    with approval, Comptroller Decision No. 40,812 (2003).

11. Id.

12. Id.

13. Tex. Tax Code Section 151.0101(a)(1) and 34 Admin. Code Section 3.298(b).

14. Tex. Tax Code Section 151.0101(a)(3) and 34 Admin. Code Section 3.310(b)(5).

15. Tex. Tax Code Section 151.0101(a)(4) and 34 Admin. Code Section 3.315.

16. Tex. Tax Code Section 151.0101(a)(12) and 34 Admin. Code Section 3.330.

17. Tex. Tax Code Section 151.302.

18. Tex. Tax Code Section 151.006(c).