Is a scrap tire shredder's gate fee (charged to the hauler who brings in waste tires) taxable, and does it matter whether the shredded tire pieces end up in a landfill, get reused as landfill cover, go to a septic drain field, or get burned for energy recovery instead of a landfill?

Plain-English summary

Scrap tire disposal in Texas runs through a chain: a hauler collects waste tires from tire dealers and takes them to a shredder, who charges the hauler a gate fee to accept the tires, cuts them into pieces, and sends the pieces on to a final destination. This letter walks through four scenarios for what happens to those shredded pieces, and in each one corrects a mistaken assumption the taxpayer had proposed: that the shredder's gate fee to the hauler is taxable or exempt depending on how the tire pieces are ultimately used.

• Scenario 1 (shreds go to a landfill and are simply mixed with municipal waste): the hauler's charge to the tire dealer is taxable, and the shredder's gate fee (paid by the hauler) is taxable too — though the hauler can give the shredder a resale certificate instead of paying tax directly on that gate fee. The landfill's own gate fee to the shredder is exempt, since the landfill is the actual final disposal site.
• Scenario 2 (shreds become "alternate daily cover" or a "leachate liner" at the landfill — an approved civil-engineering reuse): still taxable, the same as Scenario 1. If the landfill instead pays the shredder for the tire chips, that's a separate taxable sale of the chips.
• Scenario 3 (some shreds go to a landfill, others go to a septic tank company for an on-site drain field): the taxpayer assumed the gate fee could be split — taxable for the landfill-bound portion, exempt for the septic-company portion — since the tires are physically commingled at the shredder's facility. The Comptroller rejected this: the entire gate fee is taxable, because the shredder is providing one waste collection/disposal service to the hauler, and sales tax is a transaction tax applied to that service as its own transaction, not apportioned by the shreds' eventual destination. If the septic company separately pays the shredder for the shredded tires, that's its own taxable sale.
• Scenario 4 (shreds go exclusively to energy recovery, burned as a coal substitute at a paper mill or power plant, never to a landfill): the taxpayer assumed the gate fee was exempt entirely because no landfill was involved. Wrong again — the shredder is still performing a taxable waste collection/disposal service by accepting the tires from the hauler, regardless of the final energy-recovery use. The shredder must also separately collect tax on selling the tire pieces to the facility that burns them, unless that facility gives a valid resale or exemption certificate.

The consistent thread: Rule 3.356(g)'s reference to waste "moved to a landfill" distinguishes a true final-disposal site's own acceptance fee (exempt under Rule 3.356(f)) from an intermediate handler's fee for accepting waste it will move elsewhere (taxable under Rule 3.356(g)) — it does not create an exemption tied to the tires' ultimate fate (recycling, energy recovery, civil engineering reuse, or landfill burial).

What this means for you

Tire shredders, processors, and waste-tire handlers

Your gate fee for accepting tires from a hauler is a taxable waste collection/disposal service no matter what you eventually do with the shredded material — landfill it, reuse it as cover, sell it for energy recovery, or supply it to a septic/drain-field application. Don't try to apportion or exempt part of your gate fee based on end use; each downstream sale of the processed material (if any) is a separate transaction to evaluate on its own.

Landfills, energy facilities, and septic companies buying shredded tire material

If you pay a shredder for tire chips or pieces, that purchase is a taxable sale unless you're an exempt entity (like a city or county) or otherwise qualify for an exemption, and the shredder should collect tax or accept your resale/exemption certificate accordingly.

Haulers and tire dealers

The hauler's charge to the tire dealer for waste removal is taxable, and the hauler may issue its own resale certificate to the shredder for the gate fee it pays, since that gate fee is an integral part of the waste-removal service the hauler sells.

Common questions

Q: Is a shredder's gate fee ever exempt based on how the tire pieces are later used?
A: No. Whether shredded tire pieces go to a landfill, become landfill cover, go to a septic drain field, or are burned for energy recovery, the shredder's gate fee for accepting the tires from the hauler is taxable in every scenario described here.

Q: When is a landfill's own gate fee exempt?
A: A landfill's fee for accepting waste that it then buries or disposes of on its own premises is exempt — that's different from an intermediate shredder/collector charging a fee to accept waste it will move elsewhere.

Q: If a landfill or energy facility pays the shredder for the tire pieces, is that taxable?
A: Yes, that's a separate taxable sale, unless the buyer provides a valid resale certificate or qualifies for an exemption (such as being an exempt governmental entity).

Q: Can I rely on this letter for my own waste-tire business?
A: No. This opinion is based on the facts presented, and additional or different facts may change the result; it binds the Comptroller only as to the taxpayer it was issued to.

Citations and references

• 34 Tex. Admin. Code Rule 3.356(b) (tax on waste removal service charges)
• 34 Tex. Admin. Code Rule 3.356(c)(2) (resale certificate for gate fees integral to a taxable waste-removal service)
• 34 Tex. Admin. Code Rule 3.356(f) (landfill's own acceptance/gate fee is exempt)
• 34 Tex. Admin. Code Rule 3.356(g) (taxable charge for accepting waste that will be moved to a disposal site elsewhere)

Subject

Tires — Transporting/Hauling Off Waste/Scrap Tires From Dealers To Recyclers/Third Party — Fee Is Taxable As Solid Waste Collection

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9801114L

Original ruling text

January 21, 1998

Dear ***:

Thank you for your letter of January 8, 1998 concerning the taxability of the
charges associated with the collection and disposal of scrap tires. I have
restated your facts, possible situations, and understanding of the taxability
of each. My response immediately follows each fact situation.

Note: In this industry, the person who hauls scrap or waste tires to a tire
shredder or other disposal site is called a transporter. The person who shreds
or cuts the tires up is called a processor. Because these terms have different
meanings for sales tax purposes, I will use the terms hauler and shredder to
avoid confusion.

Facts: Several scenarios exist in the disposal of scrap tires. The
Comptroller's Office has already addressed the taxability of the fee charged
the consumer (cost of goods sold) and the taxability of the collection services
to take the tires from the tire dealer's location to a point of disposal (real
property service). The current issue is the taxability of a scrap tire
shredder's gate fees. These shredders provide a point of consolidation for
many haulers collecting the tires from tire stores (generators) and
subsequently shred the tires for disposal or end use(s).

Here is a list of possible situations you have identified and your
understanding of the Comptroller's position:

1. Tires are collected (along with appropriate taxes [34 Tex. Admin. Code, Sec.
   3.356 (b)]) from the tire dealer by a hauler. The hauler then takes the tires
   to a shredder who charges the hauler a gate fee to accept the tires. The
   shredder then cuts the tire up reducing their bulk and eliminating the ability
   to trap water or methane gas. The shredder then sends the cut up tire pieces
   to a landfill who charges the shredder a gate fee (tax exempt [Sec. 3.356(f)])
   and simply mixes the shreds in with municipal waste for disposal at its
   facility.

Your understanding: In this example the shredder's gate fee is taxable under
Sec. 3.356(g); however, under Sec. 3.356(c)(2) the hauler could provide a
resale certificate, as the gate fee is an integral part of the service the
hauler provides to the tire store.

Response: Your understanding of the tax treatment in this situation is correct.
The hauler collects tax on the total amount it charges the tire store for the
waste removal service. The gate fee the hauler pays the shredder to accept the
tires is taxable. However, the hauler may give the shredder a resale
certificate in lieu of paying sales tax on the shredder's gate fee.

2. Tires are collected (along with appropriate taxes [Sec. 3.356(b)]) from the
   tire dealer by a hauler. The hauler then takes them to a shredder who charges
   the hauler a gate fee to accept the tires. The shredder then cuts the tires
   up. The shredder then sends the cut up tire pieces to a landfill who could
   charge the shredder a gate fee (tax exempt [Sec. 3.356(f)]) or in some
   instances could pay the shredder for the chips. The landfill then utilizes the
   tire pieces as "alternate daily cover" or "leachate liner" which has been
   considered an "end use" application by the Texas Natural Resource Conservation
   Commission (TNRCC) and could be construed as a civil engineering application.

Your understanding: In this example the shredder's gate fee is still taxable
under Sec. 3.356(g) as the wording in this section only states "be moved to a
landfill" and does not stipulate how the waste is utilized by the landfill once
on its premises or the economic consideration. Again under Sec. 3.356(c)(2)
the hauler could provide a resale certificate, as the gate fee is an integral
part of the taxable services the hauler provided to the tire store.

Response: See the response to Situation 1. The shredder is providing a waste
removal facility where the waste tires are collected, shredded, and then moved
to another location for disposal [see Rule 3.356(g)]. The gate fee paid by the
shredder to the landfill operator is not taxable regardless of how the tire
pieces are used or disposed of in the landfill.

However, if the landfill operator pays the shredder for the tire chips, a
taxable sale occurs. The shredder should collect tax on the sale of the tire
chips to the landfill operator, or the shredder may accept an exemption
certificate if the landfill operator is an exempt entity (city or county) or
otherwise qualifies for exemption.

3. Tires are collected (along with appropriate taxes [Sec. 3.356(b)]) from the
   tire dealer by a hauler. The hauler then takes them to a shredder who charges
   the hauler a gate fee to accept the tires. The shredder then cuts the tires
   up. The shredder then sends some of the cut up tire pieces to a landfill as in
   examples 1 and/or 2 and sends some to a septic tank company who uses them in an
   "on site" drain field application.

Your understanding: In this example the shredder's gate fee is taxable under
Sec. 3.356(g), but only for those tire particles sent to a landfill. Those
used for the "on site" application at residential or commercial property are
exempt under Sec. 3.356(g) as it specifically states "moved to a landfill."
Again, as in examples 1 and 2, under Sec. 3.356(c)(2) the hauler could provide
a resale certificate, as the gate fee is an integral part of the service
provided to the tire store. However, it is unclear as to how the shredder can
discriminate which tires are going where and which are taxable under Sec.
3.356(g), as the tires in its facility are commingled.

Response: See the response to Situation 2. The shredder is performing a waste
collection and disposal service when it accepts the waste tires from the tire
hauler or other waste tire generators for disposal at another location, such as
a landfill. The reference to the landfill in Rule 3.356(g) is simply to
distinguish between nontaxable charges made by a landfill for accepting waste
at the landfill where it is buried or disposed of from taxable charges to
accept waste at a collection center and subsequently move it to a different
location for disposal. Rule 3.356(g) directs the service provider to collect
tax on the latter charges. If the septic tank company pays the shredder for
the shredded tires, it is a taxable sale and tax is due as in Situation 2.

The sales tax is a transaction tax and each transaction is taxed or exempted
under the law based on its own merit. There are separate transactions
occurring: the shredder's collection of the waste tires for the hauler and the
disposal or sale of the tire particles by the shredder to others for various
uses. The hauler may issue a resale certificate to the shredder for the
collection and removal of the waste tires [Rule 3.356(f) and (g)]. The
shredder may not and should not attempt to distinguish the method used to
dispose of the tires for the purpose of reducing the amount it charges for
waste tire collection or disposal services.

4. Tires are collected (along with appropriate taxes [Sec. 3.356(b)]) from the
   tire dealer by a hauler. The hauler then takes them to a shredder who charges
   the hauler a gate fee to accept the tires. The shredder then cuts the tires up
   exclusively for use in energy recovery as a substitute for coal. The shredder
   then sends the tire pieces to a facility (e.g., paper mill, power plant) that
   consumes the tires in its boilers.

Your understanding: In this example the shredder's gate fee is not taxable
under Sec. 3.356(g) as no waste product is sent to a landfill. The gate fee is
an integral part of the service provided to the tire store.

Response: See the response to Situation 3 above. The shredder is performing a
waste collection and disposal service when it accepts the waste tires from the
tire hauler or other waste tire generator for disposal at another location.
The shredder must collect sales tax on the sales of the tire pieces unless a
properly completed resale or exemption certificate is issued by the purchaser.

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

Please let me know if I can be of further assistance or if you have any
questions.

Sincerely,

Hayden Denham
Tax Policy Division