Missouri: Portable toilet businesses’ arguments get flushed away on appeal

The Missouri Supreme Court recently affirmed an Administrative Hearing Commission decision holding that a taxpayer owed sales tax on its portable toilet rentals. The taxpayer at issue, Gotts To Go, rented portable toilets and mobile office trailers, and provided related services to customers. When a toilet was rented, the taxpayer delivered it, picked it up at the end of the rental period, and cleaned and serviced the toilets on an as-needed basis or by special call.  With rentals of a short duration, the taxpayer might not service the toilets during the rental period.  When it purchased the toilets initially, the taxpayer did not pay sales tax, and it did not charge customers sales tax on the toilet rentals. After an audit, the taxpayer was assessed sales tax and interest on the rental of the portable toilets. The Administrative Hearing Commission ruled that the taxpayer’s customers were “primarily seek[ing] the use of the rental of a tangible, portable toilet unit;” therefore the rentals were taxable rentals of tangible personal property. The taxpayer appealed.

On appeal, the taxpayer argued that its entire portable toilet business was the provision of a non-taxable service.  The Missouri Supreme Court determined the question to be resolved was whether the portable toilets were rented or whether they were a necessary and mandatory part of a service transaction. As support for his position that the transactions were not taxable, the taxpayer cited a Missouri regulation providing that if tangible personal property is used to provide a service and the use of the property is a necessary or mandatory part of the service transaction, then a temporary transfer of the property to the customer is not a lease or rental of the property.  The court, however, held that the regulation did not apply to the taxpayer’s business. The taxpayer held itself out to be a portable toilet rental business. Without providing the toilets, the taxpayer had no service to provide. In the court’s view, this was the exact inverse of the situation contemplated in the regulation. The court also rejected the taxpayer’s argument the “true object” test should be applied to determine whether the transactions were taxable.  This test was not appliable when, as here, the item of tangible personal property being transferred had value on its own. Finally, the taxpayer argued that the imposition of tax on its portable toilets violated a provision of the Missouri Constitution that prohibits the state from imposing tax on new services after January 1, 2015. The court rejected this position on the basis that the taxpayer was not providing a service, but it was renting tangible personal property. For more information on Gott v. Director of Revenue, please contact John Griesedieck at 312-665-3024.