Your Sales Tax Questions Answered
From Tax-Exempt Customers to Sales Tax Permits
by Connie Heyer, TSSA Legal Counsel
Some of the more frequently asked questions I receive are about sales tax, including sales tax on parking. To assist you in your sales tax dilemmas, I have included those FAQs below.
Why do I have to charge sales tax when a storage space is used for parking?
The short answer is, “Because it’s the law.” Sales tax is not due on the rental of most self-storage units. However, sales tax must be collected if the rented space is used to park a vehicle. A vehicle includes most anything required to be registered—everything from passenger cars to trailers and RVs. The size of the vehicle does not matter—the tax treatment is the same.
What is the general rule?
Your facility has the duty to collect sales tax on all rents and charges received for vehicle or trailer parking or storage. Your facility needs to collect the monies from the customer and remit them to the state.
What if I just rent a whole area of my facility to one tenant for parking, and don’t know how many cars are parking in it?
You need to pay sales tax on the total rent received; it does not matter how many cars are parked in the field. If you rent an area of your parking lot for $100/month, then you simply pay sales tax on the basis of rent of $100/month.
What kinds of things do I have to collect this parking sales tax on?
In other words, what is a “motor vehicle” subject to tax? Namely, it is cars, trucks, RVs, motor homes, truck trailers, boat trailers (without a boat on them), travel trailers (but not mobile homes), pop-up trailers, golf cart trailers (but not golf carts), tow dollies, tractor trailers and motorcycle trailers. Just about anything that moves on a highway or is attached to something that moves on a highway qualifies.
What if I collect rent for parking but don’t collect the tax?
Your facility is liable for payment of the parking taxes if the customer pays the rent but not the tax.
What if the customer pays nothing, including rent?
If the customer pays nothing (defaults on rent payments), no tax is due. Your tax duties relate to rent collected.
There are always exceptions, what are they?
There is no duty to collect and remit tax on an occupied boat trailer (trailer with a boat on it), or golf cart trailer with a golf cart on it, or unlicensed off-road motorcycle trailers with an off-road motorcycle on it.
What if the car in the rented storage space comes and goes?
In my opinion it does not matter; you have rented the space for parking and sales tax is due on the rent.
Does it matter whether the vehicle is stored inside or outside?
No, sales tax is due no matter whether storage is indoor or outdoor.
What if a vehicle is stored in an enclosed unit, and there is other stuff stored in there, too?
Sales tax must be paid on the dollar amount of all rents actually received by the parking/storage facility operator for the service of parking or storage. If the car takes up half of the unit, and other stuff is stored in the other half, you could in the lease say $X rent attributable to parking storage, and $Y attributable to non-parking storage. But, that may be more trouble than it’s worth, and may cause confusion with the comptroller. It is a business decision for you, and you should consult your own lawyer or accountant, but it might make sense just to charge tax on the entire rent and not open the door to questions in that regard.
What if I don’t know a vehicle is stored inside a unit?
Once you find out, start collecting and remitting sales tax. The TSSA lease expressly prohibits storage of motor vehicles without your express consent, so legally there should not be vehicle storage that you don’t know about. If you do allow vehicle or boat storage, it is strongly recommended that you use the TSSA Vehicle Trailer and Boat Self-Storage Rental Agreement.
What about a large mobile barbecue pit?
Mobile barbeque pits are considered to be motor vehicles (and subject to storage tax) or not based on the following test: Barbeque pits that have been mounted on flatbed trailers are motor vehicles and the charge for storage are taxable. Barbeque pits that have had wheels and axels mounted on them are movable specialized equipment and charges for storage are not taxable.
What if my customer is tax exempt?
Exemptions from the sales tax include: (1) parking or storage charges paid by governmental entities, and (2) parking or storage charges paid by religious, educational, or charitable entities that sign an exemption certificate and give it to the parking facility operator. Such exemption certificates must be kept on file for Comptroller audit purposes in case the sales tax reports are ever questioned.
Can I pay the tenant’s tax? Do I have to note in my ads or my lease that tax is due?
Your lease can state (you could insert into TSSA lease paragraph 6, special provisions, for example) that the “rental price includes sales tax.” But your lease must contain this language if this is your practice. And if your price includes sales tax, obviously you must remit the sales tax to the comptroller. For example, say your rent is $50/month and your lease says that this includes sales tax. You must back out the 8.25% tax. So, your rent income is really $46.19, and you must remit $3.81 to the comptroller. If you’re passing the sales tax through to your tenant separate and apart from the rent, you don’t have to include special language in your lease. If you provide an invoice or receipt to tenants, then you must separately state the sales tax amount on the invoice or receipt unless it contains a statement that the price includes sales tax. Parking signs, parking advertisements and other promotional information for parking cannot say that the parking facility operator pays the sales tax. However, they can (a) be silent on the tax; (b) say the price includes sales tax; (c) say the price is “plus tax.”
How do I get a sales tax permit?
If you allow vehicle storage, you must obtain a Comptroller’s sales tax permit and begin to make monthly, quarterly or yearly sales tax payments to the Comptroller. As a general rule, if you have less than $1,500 in sales tax per quarter you may file quarterly. If you have less than $1,000 sales tax per year, you may file yearly “upon authorization from the comptroller.” Authorization will depend on historical sales tax filings. You may call the comptroller at (800) 252-5555 to discuss this.
If I have a sales tax permit, what if I don’t have any taxes to report for the reporting period?
Even if you don’t have any taxes to report for your reporting period, you must submit a return for that period to the comptroller.
What other parts of my business are taxable?
Boxes, tape, snack foods and other products for sale. Also, you must collect and remit sales tax on all proceeds from your Ch. 59 auctions (with the exception of sales of vehicles and boats, outboard motors and buyers with exemption certificates or resale certificates).
What about free rent or other “giveaways”?
If you occasionally give away free rent, a disk lock, boxes or other taxable items as part of a promotion, sales tax is still due. You must pay sales tax at one “end” of the transaction, regardless of whether you give the items away. In this instance you would pay sales tax on the items given away such as boxes and tape, based on their purchase price from the wholesaler. For free rent, you would remit sales tax for the full rent. The “giveaway” items should be categorized as a “taxable purchase” on your sales tax return, reportable on line three of your sales tax return.
Is sales tax due only on rent, or on late fees and other charges related to default under the lease?
The Texas Comptroller’s office appears to have recently changed its long-standing position on this matter. The Comptroller as TSSA understands it is now taking the position that sales tax must be paid on all fees of any kind collected under a lease that contemplates parking.
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