If my business charges landfill, garbage, or pallet companies a fee just to accept pallets and scrap materials at my facility (which I then use as raw material), do I owe sales tax on that fee?

Plain-English summary

The taxpayer in this letter manufactures fire logs by blending ground hardwoods with ground plastic. The hardwood comes from pallets and related materials that landfill, garbage, and pallet companies deliver directly to the taxpayer's place of business. The taxpayer performs no waste collection services for these companies — it simply charges them a fee to accept the pallets and materials (similar to a landfill "dump" charge), then grinds the material into raw input for fire log production.

The Comptroller's Tax Policy Division ruled that a person who charges a fee just to accept garbage or other solid waste — without collecting it from a customer — is not providing a taxable waste collection service as defined in Rule 3.356(a)(3). That's why a landfill doesn't collect tax on a charge to let someone "dump" their garbage or solid waste. So, the taxpayer here does not collect sales tax on its acceptance fee.

There's a catch for the companies paying that fee, though: under subsection (f) of the same rule, a garbage or other waste collection company cannot exclude a landfill-type charge from the total price of the waste collection service it bills to its own customers. So if those collection companies pass the taxpayer's acceptance fee through as a separately stated expense to their customers, they must still collect tax on it as part of their taxable waste collection service.

What this means for you

Manufacturers who accept scrap material as a raw material source

If your business charges other companies a fee just to accept materials (pallets, scrap wood, etc.) delivered to your facility — and you're not collecting or hauling the waste yourself — that acceptance fee is not treated as a taxable waste collection service. You don't owe sales tax on it, similar to how a landfill doesn't tax a straightforward "dump" fee.

Garbage, waste, and pallet collection companies

If you pay a fee like this to a materials recycler or manufacturer and then pass it along as a separately stated charge to your own customers, you generally must still collect sales tax on that amount as part of your taxable waste collection service — you can't strip it out of your taxable price just because the underlying charge itself wasn't taxed.

Accountants and tax professionals

The key distinction is between simply accepting waste/materials at your place of business (not taxable, per Rule 3.356(a)(3)) versus actively collecting waste from a customer's location (a taxable waste collection service). Watch subsection (f) of Rule 3.356 for how landfill-type charges must still be included in a collector's own taxable price to its customers.

Common questions

Q: Do I owe sales tax if I charge a fee just to accept pallets or scrap materials delivered to my business?
A: Not under this ruling — as long as you're only accepting the materials at your place of business and not performing a waste collection service (i.e., not collecting it from the customer's location), the fee isn't a taxable waste collection service under Rule 3.356(a)(3).

Q: Does it matter what I do with the materials afterward, like grinding them into raw material?
A: The ruling focuses on whether the fee is for collection versus simple acceptance. Here, the taxpayer used the pallets as raw material for fire logs, but the tax analysis turned on the nature of the fee (acceptance, not collection), not on the end use.

Q: If I'm a garbage collection company and I pay this kind of acceptance fee, can I avoid charging my customers tax on it?
A: Generally no — subsection (f) of Rule 3.356 prevents you from excluding a landfill-type charge from the total price of your taxable waste collection service when you bill your own customers.

Q: Can another business rely on this letter for its own situation?
A: No. STAR letters generally may be relied on only by the taxpayer to whom they were issued, and this letter is expressly based on the facts submitted — "other facts, though similar, may yield different results."

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.356(a)(3) (Waste Removal, Collection, and/or Disposal Services — definition excluding simple acceptance fees from taxable collection services)
• 34 Tex. Admin. Code Rule 3.356(f) (referenced — landfill-type charges cannot be excluded from a collection company's taxable price to its customers)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9512747L

Original ruling text

Alert: As of 01/15/2015, a place of business is defined as "an established outlet, office, or location operated by a seller for the purpose of selling taxable items to those other than independent employees, contractors, and individual persons affiliated with the seller."

December 14, 1995

Dear *****:

Thank you for your letter requesting the taxability of charges by your client to accept pallets and related materials from landfill, garbage and pallet companies.

Situation: Your client is in the business of manufacturing fire logs. The logs are produced by blending ground hardwoods with ground plastic. The sources of hardwood are pallets and related materials obtained from landfill,

garbage and pallet companies. These companies themselves deliver the pallets and related materials to your client. Your client performs no services for these companies, but rather charges these companies a fee for accepting the

pallets and related materials. This charge would be similar in many respects to a land fill charge. Your client grinds the pallets to use as raw material in the fire log production.

Question: Is the charge by your client to the landfill, garbage and pallet companies for accepting the pallets and related materials delivered to your client at its place of business taxable?

Response: A person who charges a fee to simply accept garbage or other solid waste without collecting the garbage or other solid waste from a customer is not providing a taxable waste collection service as defined in Rule

3.356(a)(3). This is why a landfill does not collect tax on a charge to allow someone to "dump" their garbage or solid waste. However, as explained in subsection (f) of the rule, a garbage or other waste collection company cannot

exclude a landfill charge from the total price of their waste collection service when collecting tax from their customers.

In summary, your client does not collect tax on his charge to accept pallets and related materials from customers bringing these materials to your client's place of business. However, the garbage or other solid waste collection

companies must collect tax on your client's charge if separately stated as an expense to their customers.

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

You may call me toll free at 1-800-531-5441, ext. 5-0030. The direct line is 512/475-0030. You may also write to Tax Policy, Comptroller of Public Accounts.

Sincerely,

David Somerville

Tax Policy Division