Jan 26, 2015
From KPMG TaxWatch
Recently, the Louisiana Supreme Court reversed an appeals court decision and held that a taxpayer’s cleaning and waste removal services were not taxable when provided in connection with, and incidental to, the rental of tangible personal property (portable toilets and tanks). The taxpayer, Pot-O- Gold, LLC, was engaged in the waste management service business. Notably, the taxpayer leased portable toilets and holding tanks to customers. The taxpayer also offered optional cleaning and waste removal services for the rented portable toilets and tanks, as well as stand-alone cleaning services (for toilets rented from other companies). The taxpayer’s rentals of portable toilets were clearly taxable. The standalone cleaning and waste removal services were clearly non-taxable. The dispute arose over whether City sales tax was due on cleaning and waste removal services provided in conjunction with rentals of the taxpayer’s toilets. The trial court ruled for the taxpayer, holding that the waste removal services were not taxable. The City appealed. The appeals court, applying the so-called “true object test,” held that proceeds from the cleaning and waste removal services were taxable because they were part of the “gross proceeds” derived from the rental of taxable tangible personal property. In other words, the ordinarily nontaxable cleaning and waste removal services became taxable due to “the inexorably intertwined relationship between the services and the leased property.”
The taxpayer appealed to Louisiana’s highest court. The court reversed the appeals court, and held that the cleaning and waste removal services provided in conjunction with toilet rentals were not taxable. In the high court’s view, the “true object” of the transaction could just as easily be characterized as human waste removal services, as opposed to toilet rentals. Furthermore, the court noted that it created an absurd result to not tax cleaning services for portable toilets owned by someone else, but to tax the same services if the toilet is owned by the lessor. For more information on Pot-O-Gold Rentals, LLC v. City of Baton Rouge, please contact Gary Dressler at (504) 584-1061.
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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.