In Texas Hearing Number 110,655, the taxpayer leased a building to the General Services Administration (GSA). The lease required that the building be cleaned twice a day, and the GSA reimbursed the taxpayer for the second cleaning. The taxpayer purchased the janitorial services from a third party, paid sales tax on the services, and requested a refund of the tax. The administrative law judge found that services were purchased to enable the taxpayer to fulfill its legal obligations under the lease agreements and denied the refund.
Please note, however, that the Comptroller requires landlords to collect tax from non-exempt tenants on charges for taxable services provided in tenant-occupied space. No tax is due on reimbursements for services provided in common areas. (See Comptroller Letter Ruling 200103322L and 201304670L.)
Both cases highlight the issue of the sale-for-resale concept being utilized in a service industry, and the attention to this issue for the service sector economy will prove to be very important.
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