As explained in the last article janitorial services are taxable in Texas. They are also interesting as they are one of the few services where items can be purchased tax free in certain situations as well as subcontracted services and this tends to be overlooked by businesses because they don't have the expertise on what can be tax free and why, how to file for the credits and how to document it to get through the review process, which can lead to many thousands of dollars in tax overpaid, which could be refunded in a relatively easily process.
Below we'll go through the underlying authority and what has been previously confirmed as acceptable.
Statutory Basis
First we review at 151.302 which plainly states (with my emphasis)
(a) The sale for resale of a taxable item is exempted from the taxes imposed by this chapter.
(b) Tangible personal property used to perform a taxable service is not considered resold unless the care, custody, and control of the tangible personal property is transferred to the purchaser of the service.That's fairly simple when what is being sold is like a desk or a chair. Clearly, when someone buys a desk to resell, this applies. But what about when a janitorial service firm buys paper towels to restock restrooms? Generally those costs are not directly invoiced, and are part of a lump sum invoice. Does this apply? We look further into the statute to answer this question.
151.006 Defines 'sale for resale' a number of ways. For our purposes we are just looking at #3:
(3) tangible personal property to a purchaser who acquires the property for the purpose of transferring it in the United States of America or a possession or territory of the United States of America or in the United Mexican States as an integral part of a taxable service;Fairly plain terms and direct. Now what it doesn't tell us is exactly which items meet that. Generally you would want an expert to review and document the items, though we do have some guidance for some of the more common ones.
Policy Basis
As a general qualifier, policy can change much more quickly than the statute and is less authoritative, meaning there can be legitimate basis for discounting it.
With that said, publication 94-111 "Cleaning and Janitorial Services" does enumerate a number of items:
Examples of such items that are passed on to your customers include:
wax
furniture oil or polish,
toilet paper,
paper towels,
hand soap left in the restrooms for your customers' use. Private Letter 9310136L further expands on this with
(...) paper products and bathroom supplies that remain with the customer may be purchased under a resale certificate. Summing it up
Using the rules laid out by the legislature and guidance by the Comptroller, we have a clear list of examples of when tax is not due. If your firm is paying tax where it doesn't need to, that's money you can get back and prevent from further unnecessary expenses.
Do note, that while that is as far as policy goes, our firm has had success in getting thousands of dollars back in the course of audits and/or other reviews with the Comptroller to have a host of other items be agreed to be for resale and clients who have been very happy with those results.
We're happy to have this discussion if you want to pursue getting money back from the Comptroller or prevent the cost in the first place.
Sources
https://statutes.capitol.texas.gov/Docs/TX/htm/TX.151.htm#151.302
https://statutes.capitol.texas.gov/Docs/TX/htm/TX.151.htm#151.006
