Could a Texas hospital-waste disposal service lease its incinerator tax-free for resale, and was its collection and disposal charge taxable?

Plain-English summary

A Texas company leased an incinerator from a New Jersey corporation and used it to collect and dispose of infectious hospital waste at the Texas company's location.

The Texas company could not give the lessor a resale certificate because it used the incinerator to provide its own service rather than reselling the equipment. As the service provider, it paid sales tax on the equipment lease and on supplies used to perform the service.

The total hospital charge for waste collection and disposal was taxable effective October 1, 1987 unless the waste had been identified or listed as hazardous by the U.S. Environmental Protection Agency or another appropriate federal or state agency. A hospital that qualified as an exempt entity could give the service provider a properly completed exemption certificate instead of paying tax.

What this means for you

The historical letter distinguished reselling equipment from consuming it while delivering a service. Serving an exempt hospital did not make the provider's own equipment lease tax-free.

Common questions

Could the Texas company lease the incinerator for resale? No. It used the equipment to perform its service.

Was the waste collection and disposal charge taxable? Yes from October 1, 1987, unless the waste met the official hazardous-waste condition stated in the letter.

Could an exempt hospital avoid tax on the service? Yes, with a properly completed exemption certificate.

Did the hospital's exemption make the equipment lease tax-free? No.

Citations and references

• No statute or administrative rule is cited in the letter text.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8711L0846C06

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

November 3, 1987

Dear **:

Thank you for your request for additional information concerning:

1. A New Jersey Corporation buying equipment for lease to a Texas
   corporation.

2. The Texas corporation then providing a service (waste disposal)
   to various exempt and non-exempt entitled in Texas, using the
   equipment leased from the New Jersey corporation.

The answers to your questions are as follows:

Question 1. Can the Texas corporation (lessee) provide the New Jersey
corporation (lessor) with a resale certificate and not pay sales tax for
leasing the equipment?

Answer: The Texas corporation (lessee) may not issue a resale
certificate
in lieu of paying sales tax on equipment which it uses to provide a ser-
vice for its customers.

In your previous letter, you stated that the equipment is an incinerator
which the Texas corporation will use to dispose of infectious wastes
from hospitals. In a telephone conversation *** stated that
the
Texas corporation will collect and dispose of waste from hospitals at
the Texas corporation's location.

The Texas corporation is performing a service for its customers. It
must pay sales tax on equipment and supplies used to provide the
service.

Question 2. Will the lessee be required to charge tax for services
rendered, and if so, can it provide all of its suppliers, including the
owner of the equipment, with a resale certificate?

Answer: The total charge to the hospital for waste collection and
disposal
is taxable effective October 1, 1987 unless the waste has been identified
or listed as a hazardous waste by the administrator of the United States
Environmental Protection Agency or by another appropriate federal or
state
agency.

If the hospital has qualified as an exempt entity, then the hospital
must issue a properly completed exemption certificate to the lessee in
lieu of paying sales tax for a taxable service. As stated previously,
the lessee as provider of a service may not lease the equipment tax
free.

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

If you have any questions or need more information, please call me at
1-800-252-5555 toll free from anywhere in Texas. The regular number is
512/463-4600. You may write me at the Tax Policy Division

Sincerely,
Julie Pesl
Tax Policy Division