Portable toilet rentals are ubiquitous and show up in a variety of locations, including construction sites, outdoor events, and outdoor recreation areas. For those in the business of renting portable restrooms, sales tax may not be number one on a list of concerns. However, understanding the tax implications of renting portable privies is important, as it can impact the rental prices clients pay and the compliance responsibilities of the rental business.
Some states treat the rental of a porta-potty as the taxable rental of tangible personal property, other states treat such rentals as services, and yet others apply a true object test to determine whether such transactions are taxable rentals or exempt services. The sales tax landscape can be messy when it comes to portable toilet rentals, so let’s take a look at some approaches being implemented across the states.
Restrooms as Rental of Tangible Personal Property: Missouri
In 2020, the Missouri Supreme Court ruled on the taxability of portable porcelain. The court stated, “the taxpayer held itself out as a portable toilet rental service. Without providing portable toilets to its customers, the taxpayer has no service to provide. The true object test as codified by 12 C.S.R. § 10-108.700(2)(A) [requires goods to be included as part of a service transaction]; hence, it does not apply.” Here, the court indicates that as the business was primarily engaged in the rental of tangible personal property, any necessary services included as part of the rental price would be treated as gross receipts. Missouri defines “gross receipts” as the total amount of the sale price (the term sale includes rentals), including any services other than charges incident to the extension of credit that are a part of such sales made by the business. Under this definition, money received from the rental of tangible personal property (which includes portable thrones) and accompanying services are taxable.
Had the taxpayer been a porta-loo cleaning company, would the result have been the same?
Restrooms Rentals as Exempt Service Transactions: Washington
In Washington, restroom rentals are exempt from sales tax. The owner of a portalet business is required under state law to service the toilets while being used at the customer’s location. Because of this law, portable toilet rentals are not considered to be true rentals but rather service transactions (the portable toilet is ancillary to the required service).
As Washington treats such transactions as services, the owner of the mobile lavatories must pay sales tax or use tax on each unit, as they are the final consumers (they are not re-renting the units). The owner must also pay sales tax or use tax on the chemicals, toilet paper, and other supplies required to maintain the units.
It should also be noted that the income received for the delivery, maintenance, and pickup of the chemical toilet at the customer’s location are subject to business and occupation (B&O) tax under the “Service and Other Activities” classification.
Restroom Rentals Application of True Object Test: Massachusetts
In Massachusetts, whether a portable water closet rental involving the transfer of tangible personal property is a personal service transaction is a question of fact. Such rentals are considered mixed transactions. The entire transaction will be subject to tax when a transfer of tangible personal property occurs (in this case portable toilets), the charges for the rental and associated services are not separately stated, and the per unit rental charge is not inconsequential (exceeds 10% of the total charge). However, if the value of the dunny rental is less than 10% of the total charge (91% of the transaction value comes from service charges), the entire transaction will be exempt from sales tax. In such a case, the service enterprise must pay a sales or use tax at the time it purchases the portable toilets.
An Alternative Approach: Itemizing Rental Agreements
As with many transactions, the best practice for the purposes of sales tax compliance when selling or renting goods and services is to state and itemize all charges on an invoice separately. This approach allows businesses to avoid the complexities of true object evaluations and allows for more certain results when collecting and remitting sales tax.
In most states that allow for it, if charges for the rental of outhouse-on-order units are separately stated from charges for servicing them, sales tax would only be imposed on the separately stated rental charges and any taxable services.
In conclusion, the structure of the rental agreement and the location of where portable toilet rentals occur are the biggest determining factors in whether such rentals are taxable or exempt. Knowing the ins and outs of the tax landscape can help you stay complaint.
Interested in learning more about wacky tax treatment? Download the list of top 50 weirdest sales tax rules.