California Sales Tax vs. Portable Toilet Leases
California’s sales tax treatment of portable toilet leases is one of the state’s best-kept secrets, until an unsuspecting lessor is faced with a crippling audit assessment. Here’s how to protect your business and minimize your sales taxes.
- All California chemical toilet leases are taxable, whether or not you paid tax on the units when you bought them. Always collect and report sales tax on your toilet lease receipts.
- Since you’re obligated to report sales tax on your lease receipts, you don’t need to pay the tax when you buy the toilets from Satellite Industries. However, you must give Satellite Industries a completed California resale certificate at the time of purchase, or they will be required to charge the tax.
Most portable toilet rentals are accompanied by a service component, such as sanitizing the units and replacing deodorizers, toilet paper, and fragrance sprays. These services are nontaxable only if both of the following conditions are met.
- Charges for cleaning must be separately stated to the customer in the contract and/or invoices. If the charge is one lump sum (such as $50), sales tax will apply to the entire charge. If the charge shows $10 for rental and $40 for cleaning, and the second condition (below) is also met, sales tax will only apply to the $10 rental charge.
- The customer must be given an option to rent the toilet without the service. The contract and/or invoice should include a written statement to the effect that cleaning and maintenance services are offered at the customer’s option.
Amounts attributed to rental charges should be reasonable. For example, an auditor might challenge a $1.00 rental charge that accompanied a $49.00 cleaning charge.
Supplies and Materials
How about sales tax on the materials provided with the cleaning, like toilet paper and deodorant bars? The treatment depends on whether or not the services themselves are taxable.
- If the accompanying services aren’t taxable, you must pay your vendor sales tax when you buy the materials.
- If the services are taxable, you can buy items like toilet paper and materials for resale, since they’re considered resold as part of the entire rental and cleaning package.
- You must always pay tax when you buy materials that you use internally, like rags, mops, and cleaning solvents.
Questions? Call McClellan Davis toll-free at 1-855-995-6789 (in the Sacramento area, call 916-788-0999), and ask for Dan Davis or Jesse McClellan. We’ll be glad to help with questions about sales tax, including audit defense and the protest process, in California or any other state.