Is Texas sales tax due on fees for recovering or removing freon/refrigerant gas from air conditioners, refrigerators, and vehicles?

Subject

Freon/Refrigerant Gas Recovery Or Extraction From Air Conditioner Units That Require Repair

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9308076L

Plain-English Summary

A business that recovers and bottles freon/refrigerant gas from air conditioners and other equipment asked the Comptroller about the taxability of two types of charges.

The first question involved the public dropping off an old refrigerator or window A/C unit at the business's plant for a $5 fee. The business does this as a public service, since the public generally can't dispose of an appliance containing chlorofluorocarbons at the city landfill or salvage yard unless the refrigerant is removed and the removal is certified in writing — and most members of the public don't have the certified equipment to do that themselves. The business removes and certifies the removal of the refrigerant, then disposes of the old unit at a salvage yard, recouping part of its expense that way. The Comptroller responded that the $5 fee for removing the refrigerant gas is not subject to sales tax, and that the business may accept a resale certificate in lieu of tax from the salvage yard that buys the scrap units from it.

The second question involved the business being called out to various locations to recover or extract refrigerant gas from units that require repair (since the gas can no longer be vented to the atmosphere). The business performs no repairs and does not recycle or reclaim refrigerant on site — it simply removes and bottles the refrigerant so someone else can repair or replace the unit, and the bottled refrigerant remains the customer's property (it is not reinstalled). If the customer doesn't want to keep the refrigerant, the business retains and recycles it. The business charges by the hour plus mileage, and asked whether sales tax applies to this labor across a list of scenarios: recovery from an aircraft or motor vehicle, from a central A/C unit at a residence, from a refrigerator or window A/C unit at a residence, from a central A/C unit in a non-residential building, from an apartment complex's owned A/C unit for an apartment, from the office A/C unit in an apartment complex, and to mileage charged with or without taxable labor.

The Comptroller's response: none of the charges for recovering the refrigerant gas are taxable, because the business simply puts the client's gas in the client's bottle and turns it over to them, or retains and recycles the gas through a third-party recycler. However, the business must charge tax if it sells a freon bottle to a customer, and if it performs a taxable service for a customer, it must also charge sales tax on the mileage.

The letter closes with the standard caveat that the opinion is rendered based on the facts submitted, and that other facts, though similar, may yield different results.

What This Means For You

Refrigerant recovery fees, standing alone, are not taxable. Whether it's a flat $5 drop-off fee for certifying removal from an old appliance, or hourly labor charges for recovering refrigerant from an A/C unit, vehicle, or aircraft that needs repair, the Comptroller treated these recovery/extraction charges as non-taxable — as long as the business is simply removing and bottling the customer's gas (or recycling it through a third party) rather than performing a repair.

Selling a bottle of freon is a taxable sale. The letter draws a clear line: the labor to recover and bottle refrigerant is not taxable, but if the business sells a freon bottle to a customer, that sale is subject to sales tax.

Mileage follows the taxability of the underlying service. If the labor charge itself is not taxable, the accompanying mileage charge is not taxable either. But if the business performs a taxable service for a customer, it must charge sales tax on the mileage billed for that job too.

Resale certificates can cover scrap sales. The business may accept a resale certificate in lieu of tax from the salvage yard that buys the scrapped-out old units from it.

Q&A

Q: Is the $5 fee charged to the public for removing refrigerant from a dropped-off refrigerator or window A/C unit taxable?
A: No. The letter states the $5 fee for removing the refrigerant gas is not subject to sales tax.

Q: Does the business need to charge tax when it sells the old, refrigerant-free units to a salvage yard?
A: The letter says the business may accept a resale certificate in lieu of tax from the salvage yard that buys the scrap units from it.

Q: Is hourly labor to recover refrigerant gas from a customer's A/C unit, refrigerator, or vehicle that needs repair taxable?
A: No. The letter states that none of the charges for recovering the refrigerant gas are taxable, since the business puts the client's gas in the client's bottle and turns it over to them, or retains and recycles it through a third-party recycler.

Q: Does it matter whether the refrigerant is recovered from a residence, a non-residential building, or an apartment complex?
A: The letter answers the recovery-labor question generally as "none of the charges ... are taxable," without drawing a distinction by location among the scenarios listed (aircraft, motor vehicle, residential central A/C, residential refrigerator/window A/C, non-residential central A/C, or apartment complex units).

Q: Is it ever taxable to sell a freon bottle to a customer?
A: Yes. The letter states that the business must charge tax if it sells a freon bottle to a customer.

Q: Is mileage always exempt when billed with a refrigerant recovery service?
A: Not always. The letter states that if the business performs a taxable service for a customer, it must charge sales tax on the mileage also — meaning mileage is taxable when paired with a taxable service, but not when paired with a non-taxable one.

Original ruling text

August 4, 1993

Dear **:

Thank you for your recent letter which is restated in part with response below.

Question 1: The public may drop off an old refrigerator or window a/c unit at
our plant and pay a fee of $5. We do this as a public service since they can no
longer dispose of an appliance containing chloroflurocarbons at the city
landfill or salvage yard unless the refrigerant gas is removed and they certify
in writing that it is removed. Typically the public does not have the certified
equipment required. We remove the refrigerant and certify the removal and
dispose of the old unit at a salvage yard thus recouping part of our expense.
Would we charge sales tax on the transaction?

Response: The $5 fee for removing the refrigerant gas is not subject to sales
tax. You may accept a resale certificate in lieu of tax from the salvage yard
that buys the scrap units from you.

Question 2: We are frequently called to perform service at various locations.
This service involves the recovery or extraction of refrigerant gas from units
that require repair. The gas can no longer be vented to the atmosphere. We
perform no repairs. We do not recycle or reclaim refrigerants on site. We
simply remove and bottle the refrigerant so that others may repair or replace
the unit. The bottled refrigerant remains the property of the customer. We do
not reinstall the refrigerant in the customer's unit. If the customer does not
want to keep their refrigerant, we will retain and recycle the refrigerant. We
charge by the hour plus mileage. Do we charge sales tax for the following labor
service?

-- recovery from an aircraft or motor vehicle
-- recovery from a central air conditioning unit at a residence
-- recovery from a refrigerator or window a/c unit at a residence
-- recovery from a central a/c unit in a non-residential building
-- recovery from an apartment complex owned a/c unit for an apartment
-- recovery from the office as/c unit in an apartment complex
-- mileage when there is no sales tax on the labor
-- mileage when there is sales tax on the labor

Response: None of the charges for recovering the refrigerant gas are taxable
since you simply put the client's gas in the client's bottle and turn it over
to them or retain and recycle the gas through a third-party recycler. You must
charge tax if you sell a freon bottle to a customer. If you perform a taxable
service for a customer, you must charge sales tax on the mileage also.

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

If you have questions or need more information, please call or write. You may
reach me by calling toll free, (800) 531-5441 (ext.34680). My direct line
number is (512) 463-4680. The number for FAX transmissions is (512) 475-0900.
You may write to me in care of Tax Administration Division.

Sincerely,

Al Van Allen
Tax Administration Division