United States

Texas: Amusement Park Storage Lockers Deemed Nontaxable Storage Service

Apr 18, 2016
From KPMG TaxWatch

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In a recent private letter ruling, the Texas Comptroller addressed whether fees charged for use of electronic storage lockers at an amusement park were subject to Texas sales tax. The taxpayer provided electronic storage lockers for amusement park guests under a license agreement with the owner of facility. Per the agreement, the taxpayer was responsible for the design, fabrication, installation, operation and management of the locker concession. In 2014, the taxpayer requested a private letter ruling from the Texas Comptroller seeking guidance on whether the locker rental fees were taxable rentals of tangible personal property or nontaxable rentals of real property. In response, the Comptroller issued a general information letter advising the taxpayer that the fees were subject to Texas sales tax as rentals of tangible personal property. In June 2015, the taxpayer submitted a second private letter ruling request asserting that it was not renting tangible personal property, but was providing a nontaxable service.

Texas law imposes sales tax on the sale or rental of tangible personal property, as well as certain enumerated services. By regulation, the Comptroller defines a lease or rental as a transaction in which possession, but not title, is transferred for consideration. While the term possession is not defined, the Comptroller has previously interpreted the term to require that the lessee must exercise operational control and exclusive possession of the property. The Comptroller concluded that the amusement park guest did not exercise operational control of the lockers because the taxpayer, not the guest, primarily used, controlled, and operated the electronic lockers for the benefit of the amusement park attendees. Furthermore, the taxpayer was responsible for installation, maintenance, and repair of the lockers. Finally, the guests did not have exclusive possession of the lockers because the taxpayer retained access to all the lockers issued to guests. Thus, the Comptroller concluded that the storage locker concession constituted a service rather than a rental of tangible personal property. Moreover, electronic storage locker services are not an enumerated taxable service under Texas law, making the rental of the storage locker a nontaxable transaction. The Comptroller also advised that the taxpayer was not eligible for a sale for resale exemption for purchase of the lockers because it was acquiring them for the purpose of performing a nontaxable service. For more information on Texas Ltr. No. 201603743L, PLR #151870553 (March 14, 2016), please contact David Davis at (214) 840-6791 or Chadron Woodfork at (713) 319-3846.

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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.