Is a tire dealer's disposal/collection fee for scrap tires taxable, and does it matter whether the fee is separately stated?

Plain-English summary

A tire dealer asked about two different charges connected to scrap tires: the collection fee charged to the consumer (new tire buyer), and a separate charge for transporting used tires from the dealer to a recycler. At the time, Texas law had established a scrap tire recycling program that imposed a fee on tire purchasers — but that law was set to expire December 31, 1997. That consumer-facing fee is not taxable if it is separately stated on the sales contract or invoice.

Anticipating the program's expiration, tire dealers were devising their own procedures to keep tire recycling going, including continuing to collect a fee to cover the cost of transporting scrap tires to recyclers. The Comptroller held that THIS dealer-created disposal fee is different: because it defrays a cost the dealer itself incurs, it is taxable as part of the sales price of the new tire — and that holds even if the dealer separately states the fee on the invoice, since Tax Code § 151.007(a)(2) defines "sales price" as the total amount charged without any deduction for materials, labor, services, or other expenses (the disposal fee being exactly that kind of expense). Separately, the fee the transporter charges the dealer to remove the scrap tires is itself taxable as waste collection and removal under Rule 3.356(a)(3). The letter stresses these are two separate transactions under the transaction-based sales tax: the consumer pays tax on the new tire (including the dealer's disposal fee baked in), and the dealer separately pays tax on the transporter's waste-removal charge.

What this means for you

Tire dealers

If you charge your own fee to cover scrap-tire disposal/transport costs (as opposed to collecting a fee under state law that's remitted elsewhere), that fee is taxable as part of your tire's sales price — separately stating it on the invoice does not make it nontaxable, unlike a true pass-through state-mandated fee. You also owe tax yourself on what a waste hauler charges you to remove the scrap tires.

Accountants and tax professionals

Distinguish carefully between a state-imposed consumer fee (nontaxable if separately stated, but tied to a program that expired 12/31/1997) and a dealer-created disposal/handling fee (always taxable as part of the sales price, separately stated or not) — the label "recycling fee" alone doesn't tell you which rule applies; check who created the fee and why.

Common questions

Q: Is a scrap tire disposal fee charged by a tire dealer to its customers taxable?
A: Yes, if it's the dealer's own fee to cover disposal/transport costs — it's part of the taxable sales price even when separately stated.

Q: Does the dealer owe tax on the transporter's charge to remove scrap tires?
A: Yes, that charge is taxable as waste collection and removal under Rule 3.356(a)(3).

Q: Can another tire dealer rely on this exact letter?
A: No. This is a Texas STAR letter ruling binding on the Comptroller only for the taxpayer it addresses (34 Tex. Admin. Code Rules 3.1, 3.10); confirm your own facts with a tax professional.

Citations and references

Statutes and rules:

• Tax Code § 151.007(a)(2) (sales price includes expenses like a disposal fee, no deduction allowed)
• 34 Tex. Admin. Code § 3.356(a)(3) (waste collection and removal as a taxable real property service)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9709956L

Original ruling text

September 25, 1997

Dear *****:

Thank you for your letter of September 22, 1997, concerning the taxability of
the collection fee for the consumer (new tire buyer) as well as the charge for
transporting the used tires from the generator (tire dealer).

The law that established the scrap tire recycling program and imposed a fee on
purchasers (consumers) of tires expires December 31, 1997. This fee that is
imposed on the consumer is not taxable if separately stated in the sales
contract or on the sales invoice for the tires.

Tire dealers are devising a policy and procedures that will keep the program
alive. They will continue to collect a fee to defray the cost of transporting
the scrap tires to recyclers. Because this disposal fee is to defray the cost
incurred by the tire dealer, the disposal fee will be taxable as part of the
sales price of the new tires. The sales tax will apply even though this fee is
separately stated.

Texas Tax Code Section 151.007(a)(2) defines the sales price of a taxable item
as the total amount a taxable item is sold for without a deduction for
materials, labor or service employed, or other expenses. The disposal fee is
an expense the seller incurs for disposing of used tires.

The fee for transporting the scrap tires from the dealers to the recyclers is
taxable as waste collection and removal [see Rule 3.356(a)(3) concerning real
property services].

The sales tax is a transaction tax. The taxation of the fee as part of the
sales price of a new tire is a separate transaction from the payment of a fee
to the tranporter removing scrap tires. The consumer pays the tax on the
purchase of new tires and the dealer pays tax for the removal of the waste or
scrap tires.

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

You may call me toll free 1-800-531-5441, extension 3-4683. The direct line is
512/463-4683. You may also write to Tax Policy Division, Comptroller of Public
Accounts.

Sincerely,

Eddie C. Washington
Tax Policy Division

cc: Hayden Denham, Tax Policy Division
Kirk Davenport, Tax Policy Division