United States

South Carolina: Appeals Court Applies True Object Test to Portable Toilet Business

Oct 12, 2015
From KPMG TaxWatch

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Recently, the South Carolina Court of Appeals affirmed an Administrative Law Court ruling that gross proceeds from a portable toilet business were subject to sales and use tax. In South Carolina, like in many states, receipts from the sale or rental of tangible personal property are subject to sales tax while receipts from providing most services are not. Oftentimes, disputes arise over whether a taxpayer is providing a service or selling/renting tangible personal property. The taxpayer in this case argued that the true object of her business was providing a service – the removal and disposal of human waste. However, the Administrative Law Court determined that the true object of the transactions at issue was the rental of portable toilets and therefore the taxpayer’s gross proceeds were subject to sales tax. 

On appeal, the court first considered the proper standard of review to apply. In South Carolina, a court of appeals does not defer to a lower court on questions of law, but does defer to trial court determinations regarding questions of fact – which includes mixed questions of law and fact – provided the lower court’s decision is supported by substantial evidence. The court considered at length whether a determination under the true object test is a question of law or fact, noting that other states are split on the issue.  Ultimately, the court held that the determination is a question of fact. 

Turning to the underlying issue, the court found that there was substantial evidence to support the holding that the true object of the transactions at issue was the rental of portable toilets, not the provision of human waste removal and disposal services. The taxpayer’s website and documents repeatedly described the business as a “portable toilet rental business.” Moreover, many of the taxpayer’s customer contracts provided evidence that customers paid for the use of the taxpayer’s toilets for a limited amount of time – an arrangement the court determined was essential to a lease. Finally, the court noted that a number of the invoices had separately-stated fees that appeared to vary based on the amenities associated with a particular model of toilet. In the court’s view, this further evidenced that customers were interested in obtaining the use of the toilets, rather than just the “removal of human waste.”  For more information regarding Boggero v. Dep’t of Revenue, please contact Jeff Corser at 704-371-5286.

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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.