One of the thorniest issues in Texas sales and use tax is the distinction between the rental of tangible personal property (which is subject to tax) and the provision of a service (which is only taxable if the service is taxable). This distinction not only affects the taxability of charges for the rental or service but also that of equipment that is purchased to provide the rental or service.

What’s a Rental?

The rental of tangible personal property in Texas is subject to sales or use tax.[1] A rental occurs when possession but not title to tangible personal property is transferred for consideration.[2] A person acquires possession of tangible personal property when that person acquires operational control over that property.[3] Operational control, in turn, means that the customer can use, control, or operate the tangible personal property.[4]

What are Taxable Services?

Only the following services are subject to Texas sales or use tax:
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