Is a document-shredding and destruction service taxable under Texas sales tax?

Subject

Document/Record — Shredding/Destruction And Disposal Services

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9403L1293C14

Plain-English Summary

The Comptroller ruled that a document-shredding business's service is not taxable under Texas sales tax. The taxpayer was paid by the minute by clients to shred their documents (for example, $2 per minute of shredding time). A mobile shredder mounted on the taxpayer's truck bed shredded the papers on-site, generally fed directly from the customer's loading dock, and often shredded the documents in front of the customer because the customer companies were under federal restrictions on how they could destroy and dispose of records. The client retained ownership of the paper until it was actually shredded.

After shredding, the taxpayer removed the shredded paper and sold it to a recycling company — pre-sorted shredded paper fetched up to $175 per ton, versus about $20 per ton for unsorted paper. But the letter stressed that removing the shredded paper was just part of the service, with no separate charge to the customer for that removal, and that the cost of removing the paper was insignificant compared to what was charged for the shredding service itself.

The Comptroller's reasoning: "The essence of the transaction is the destruction of documents, not the removal of trash." Because there was no charge to the customer for removing the shredded paper, and the removal was incidental to (not the driver of) the transaction, the service as a whole was not taxable.

What This Means For You

If you run a document-shredding/destruction business: Under this letter's facts, charging a single, undifferentiated fee for the shredding/destruction service — with no separate line-item charge for hauling away the shredded remnants — supports treating the whole service as non-taxable. The letter turned on the fact that removal was incidental and unbilled separately, and that the point of the service (from the customer's perspective) was destroying sensitive records, not getting rid of trash.

If you separately bill for waste/trash removal: This ruling does not say all removal services are automatically non-taxable — it specifically distinguishes destruction services (where removal is incidental and free) from "removal of trash" as a service in its own right. If your business charges separately for hauling away shredded or discarded material, this letter's reasoning may not extend to you; that fact pattern isn't addressed here.

If you're a business hiring a shredding company: This letter reflects the Comptroller's view of one taxpayer's specific facts as of 1994. Confirm with a current tax professional or the Comptroller whether your shredding vendor's billing structure (per-minute shredding charge, no separate removal charge) still lines up with how this exemption is applied today.

Q&A

Q: Does charging by the minute for shredding, with no separate charge to haul away the shredded paper, make the service taxable trash removal?
A: No. The Comptroller found that because there was no charge to the customer for removing the shredded paper and the cost of that removal was insignificant relative to the shredding charge, the essence of the transaction was document destruction, not trash removal — so the service was not taxable.

Q: Does it matter that the shredding company later sold the shredded paper to a recycling company for money?
A: The letter describes this fact (recycling companies paid roughly $20 per ton for unsorted paper, up to $175 per ton for the taxpayer's pre-sorted shredded paper) but does not treat the recycling sale as what makes the underlying shredding service taxable or not — the ruling's stated basis for non-taxability is the absence of a separate removal charge and the destruction-focused "essence of the transaction," not the downstream recycling sale.

Q: Who owned the paper while it was being shredded?
A: Per the letter, the client retained ownership of the paper until it was shredded.

Original ruling text

March 28, 1994

Dear **:

Recently, you asked how record shredding and removal should be
treated for tax purposes. Under the facts as you presented them, you are paid
by the minute by your clients to shred documents, e.g., $2 per minute of
shredding time. You then remove the shredded paper and sell it to a
recycling company. Recycling companies pay approximately $20 per ton for
unsorted paper. You sort the paper before it is shredded, and the sorted
paper will be purchased for amounts as high as $175 per ton. The client
retains ownership of the paper until it is shredded.

Removal of the paper is part of your service, but there is no
charge to remove the shredded paper. The cost of removing the paper is
insignificant in relation to the charges for the service. Your shredder is in
the flat bed of the truck, and the paper is generally fed from the customer's
loading dock directly into the shredder. The truck operates all day without
returning to its home base to unload the shredded paper. When it does return,
it is unloaded directly from the truck into a pit at the home location owned
by the recycling company.

The companies for whom you shred documents are usually under
federal restrictions in destroying and disposing of documents. Consequently,
the papers are gathered in document drops designed by your company and are
shredded in front of the customer.

The essence of the transaction is the destruction of documents,
not the removal of trash. There is no charge to the customer for removing the
shredded paper, and the company's cost to do so is significant. Therefore,
your service is not taxable under the sales tax.

I hope this satisfactorily answers your question. Should you
require more information, please write Wade Anderson, Assistant Director of
Tax Administration, at 111 East 17th Street, Austin, Texas 78774, or call him
at 1-800-531-5441, extension 3-4004.

Sincerely,

Wade Anderson
Assistant Director
Tax Administration

NOTE: Previous Accession Number 9403188L