I operate a landfill and am reorganizing into a separate management company -- is operating the landfill itself taxable, and does adding a transfer station change that?

Subject

Landfills — Disposal/Tipping Fees — Not Taxable Unless Part Of Garbage Collection

Plain-English summary

A landfill owner was reorganizing its corporate structure, splitting off a separate management company that would operate the landfill under the required permits, while a different corporation would hold title to the land and the permits. The management company would receive trash already delivered to the dump site, separate it, compact it, place it in the landfill, and cover it as required by the permit -- but it would not go out and collect or haul trash from customers' sites (with one possible exception).

Operating the landfill itself is not taxable. The Comptroller confirmed that operating and managing the landfill -- receiving, separating, compacting, and covering trash already brought to the site -- is not the removal or collection of garbage, rubbish, or other solid waste. It is a nontaxable service. The management company still owes tax on its own purchases of taxable items used to provide that service.

A transfer station changes the answer. The company was also considering operating a transfer station -- a separate deposit site (not the landfill itself) where customers drop off trash, which is then transported to the dump site. The Comptroller held that operating a transfer station is a taxable service: customers depositing trash there are paying for taxable real property services under Rule 3.356(g) (garbage removal facilities). The management company must collect sales tax on trash deposited at the transfer station, and under Rule 3.356(f), landfill charges are included in the total taxable sales price of that garbage collection service.

Dropping trash directly at the landfill is not taxable. If, instead, the customer deposits the trash directly at the dump site (the landfill itself, not a transfer station), no tax is due. The letter notes the company needs to keep accurate records if it provides both taxable (transfer station) and nontaxable (landfill-only) services to its customers.

What this means for you

Landfill operators / landfill management companies

Simply operating and managing a landfill -- receiving trash already delivered to the site, sorting/compacting it, and covering it per permit requirements -- is a nontaxable service. You don't collect sales tax on your landfill operating charges for trash brought directly to the dump site. You do still owe tax on your own taxable purchases used to run the operation.

Landfill operators who also run (or are considering) a transfer station

If you operate a transfer station -- a separate site where customers drop off trash before it's hauled to the landfill -- that activity is a taxable real property service (garbage removal) under Rule 3.356(g). You must collect sales tax on amounts customers pay at the transfer station, and the taxable sales price includes any landfill charges bundled in, per Rule 3.356(f).

Businesses providing both taxable and nontaxable disposal services

If your business (like the one in this letter) operates both a transfer station and a landfill drop-off point, keep accurate records distinguishing the taxable transfer-station transactions from the nontaxable direct-to-landfill transactions, since only the former carries sales tax.

Common questions

Q: Is running a landfill (receiving, compacting, and covering trash) a taxable service?
A: No. The Comptroller held this is not the removal or collection of garbage and is a nontaxable service.

Q: Does the landfill operator pay any tax at all in this situation?
A: Yes -- the management company must pay tax when it purchases taxable items used to provide its (nontaxable) landfill services.

Q: What is a transfer station, and does it change the tax treatment?
A: A transfer station is a separate deposit site (not the landfill) where customers drop off trash before it is transported to the dump site. Operating one is a taxable real property service under Rule 3.356(g), because customers there are paying for garbage collection, not just landfill operation.

Q: If a transfer station is taxable, what amount is taxed?
A: The sales tax applies to the trash deposited at the transfer site, and under Rule 3.356(f), the taxable sales price includes any landfill charges bundled into that garbage collection service.

Q: Is tax due if the customer deposits trash directly at the landfill/dump site instead of a transfer station?
A: No.

Q: What if a company provides both types of service -- transfer station and direct landfill drop-off?
A: The letter cautions that the company needs to keep accurate records to distinguish the taxable (transfer station) services from the nontaxable (direct landfill) services.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.356(g) (garbage removal facilities are taxable real property services)
• 34 Tex. Admin. Code Rule 3.356(f) (landfill charges included in the total sales price of taxable garbage collection 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/9612990L

Original ruling text

December 4, 1996

Dear **:

Thank you for your letter concerning the sales tax treatment of services for
a proposed reorganization of your client's corporate structure.

Situation: Your client currently owns a landfill.
The client is contemplating reorganizing its current corporate structure into a
management company for the landfill versus a corporation that holds the title
to the property of the landfill. The corporation that owns the title to the
property will also own all the permits required to operate a landfill. The
management company will operate the landfill in accordance with the permit
requirements. The management company does not remove or collect trash in the
sense that it does not take the trash from the site or collect it from the site
of its customers, with one exception discussed below. The management company
receives the trash at the dump site, separates the trash, and compacts the
trash to be placed in the landfill, with the one exception discussed below.
Once the trash has been placed in the landfill, the management company will be
responsible for covering the trash in accordance with the permit requirements.

Question: By operating the landfill, is the management company providing a
real property service or other taxable service?

Response: The services to operate and manage the
landfill is not the removal or collection of garbage, rubbish, or other solid
waste. The management company is providing a nontaxable service. Of course,
the management company must pay tax when purchasing taxable items used to
provide its services.

One Exception Situation: There is possibly one
exception. The company is contemplating purchasing a transfer station. The
transfer station is a deposit site for trash at a location other than the
landfill. Customers deposit the trash at the transfer station, and the trash
is then transported from the transfer station to the dump site.

Question: Does the fact that the management company
operates a transfer station create a taxable service to its customers?

Response: Yes. The customers are paying for taxable real property services.
See enclosed Rule 3.356(g) concerning garbage removal facilities.

Question: If so, should the management company collect sales tax at the
transfer site, for the trash deposited at the transfer site by its customers?

Response: Yes. Please note that subsection (f) of Rule 3.356 includes
landfill charges in the total sales price of the taxable garbage collection
services.

Question: In the alternative, if the customer deposits the trash at the
dump site, is tax due?

Response: No. However, the management company needs to keep accurate
records if providing both taxable and nontaxable services to its 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