Did Louisiana Revenue Ruling 13-003 exclude repair parts for leased or rented equipment from sales tax?

Plain-English summary

Louisiana Revenue Ruling 13-003 originally said repair parts and maintenance materials for leased or rented equipment did not qualify for the sale-for-lease-or-rental exclusion.

It applied that result whether the equipment owner bought and installed the parts or a third-party repair provider supplied them as part of a separately billed service.

This is historical guidance. Revenue Information Bulletin 13-014 suspended implementation of RR 13-003 effective July 18, 2013. Louisiana Revenue Ruling 14-002 later distinguished parts bought separately by a lessor from parts consumed in taxable repair services.

Original position in RR 13-003

La. R.S. 47:301(10)(a)(iii) excluded tangible personal property sold for lease or rental. RR 13-003 read that provision as not extending to parts and materials used to repair or maintain equipment already held for lease or rental.

The ruling therefore denied the exclusion in both situations it described:

• the equipment owner bought and installed the parts; or
• a third-party repair provider installed the parts and billed them separately.

Repair-service reasoning

The ruling relied on International Paper Company v. East Feliciana School Board. That case treated replacement parts as inseparable from the taxable repair service because the equipment could not be repaired without them.

The repair provider consumed the parts in making the repair rather than selling the parts separately to the customer. Separate billing did not divide the repair labor from the parts for tax purposes.

Department suspended implementation

Revenue Information Bulletin 13-014 states: “The Department is suspending the implementation of Revenue Ruling No. 13-003.” The suspension was effective July 18, 2013.

The bulletin described itself as an informal, general statement that did not bind either the public or the Department.

Later related guidance

Revenue Ruling 14-002, issued December 17, 2014, concluded that a lessor's repair part could qualify when purchased separately from taxable repair services and incorporated by the lessor into property held for lease or rental. It continued to treat parts consumed by a repair shop as taxable with the repair labor.

Because RR 13-003 was suspended and later guidance drew a distinction it did not make, this page should be read as a record of the Department's February 2013 position rather than a current operating rule.

What this means for you

Lessors and rental businesses

Do not use RR 13-003 alone to decide the tax treatment of a current repair-part purchase. Review later Department guidance and current exemption-certificate rules.

Repair shops

The repair-service analysis remained important: parts integral to taxable repair labor were treated as consumed in the service even when separately invoiced.

Accountants and tax professionals

Preserve the timeline in any historical analysis: RR 13-003 was issued February 27, 2013 and its implementation was suspended effective July 18, 2013.

Common questions

Q: What did RR 13-003 originally hold?

A: It denied the lease-or-rental exclusion for repair parts and materials, including parts bought and installed by the equipment owner.

Q: Did separate billing make repair-shop parts exempt?

A: No. The ruling treated the parts as inseparable from and consumed in the taxable repair service.

Q: Is RR 13-003 current guidance?

A: Its implementation was suspended effective July 18, 2013. Later RR 14-002 distinguished separately purchased lessor-installed parts from repair-shop parts.

Citations and references

• La. R.S. 47:301(10)(a)(iii) — sale for lease or rental exclusion
• La. R.S. 47:301(7)(a) — lease or rental definition
• La. R.S. 47:301(16)(a) — tangible personal property definition
• International Paper Company v. East Feliciana School Board, 850 So.2d 717 (La. Ct. App. 2003), writ denied, 847 So.2d 1235 — repair parts integral to taxable repair labor
• Revenue Information Bulletin 13-014 — suspended implementation effective July 18, 2013
• Revenue Ruling 14-002 — later treatment of separately purchased and repair-service parts
• LAC 61:III.101(C) — Revenue Ruling authority and reliance statement

Source

• Landing page: Louisiana Department of Revenue Policies
• Original PDF: LA Revenue Ruling 13-003

Original ruling text

RPage 1 of 2Revenue Revenue RevenueRRRRevenue Information Bulletin No 01-xxxx
Transactions by Roustabouts, “Work as Directed" Service ProvidersrrEVENUErRRR

Revenue Ruling
No. 13-003
February 27, 2013
Sales Tax
Parts and Materials Purchased for Repair or Maintenance of Lease or Rental
Equipment
Purpose: The purpose of this Revenue Ruling is to address whether parts and materials
purchased by equipment lease or rental dealers to repair and maintain their lease or rental
equipment is excluded from the payment of sales tax under La. R.S. 47:301(10(a)(iii).
Analysis/Discussion: La. R.S. 47:301(10)(a)(iii) provides an exclusion from sales tax for
purchases made for the purposes of lease or rental. La. R.S. 47:301(10)(a)(iii) provides in
pertinent part, “Retail sale” or “sale at retail” for purposes of…state sales and use taxes imposed
on transactions involving the lease or rental of tangible personal property…means a sale to a
consumer or to any other person for any purpose other than for…lease or rental in an arm’s
length transaction in the form of tangible personal property…”
La. R.S. 47:301(7)(a) defines the term “lease or rental,” in pertinent part, as “the leasing or
renting of tangible personal property and the possession or use thereof by the lessee or renter, for
a consideration, without transfer of the title of such property.”
La. R.S. 47:301(16)(a) defines the term “tangible personal property,” in pertinent part as
“…personal property which may be seen, weighed, measured, felt or touched, or is in any other
manner perceptible to the senses.”
In International Paper Company v. East Feliciana School Board, 2002-0648 (La.App. 1 Cir.
3/28/2003), 850 So.2d 717, writ denied, 2003-1190 (La. 6/20/2003), 847 So.2d 1235,
International Paper argued that when its machinery was repaired in East Feliciana Parish and
subsequently delivered back to its paper mill in Mobile, Alabama, a different tax consequence
resulted to its separately billed labor/service component from its parts/materials component.
While International Paper conceded the labor/service component was clearly taxable, it argued
the parts/materials component was not because the parts/materials constituted tangible personal
property delivered outside of the taxing jurisdiction (Mobile, Al).
In rejecting this argument, the Court reasoned that parts are of no use to a customer without the
service provided and that the service cannot be completed without the parts. As such, the Court
held that regardless of whether the labor/service and parts/materials were separately billed, the
two components constituted a repair to equipment subject to sales tax. The Court held, in
pertinent part, “It appears to me that these two items, labor and materials or parts, go hand in
hand. I do not think that they’re divisible…”
Finally, the Court summarizes its analysis of the taxability of the separately stated repair parts. It
states, in pertinent part, “IP sent its paper-making equipment to WYESCO to be repaired. In
order to fix or restore the equipment, WYESCO necessarily had to replace broken parts with new
parts. The equipment could not have been repaired without them, and therefore the furnishing of
A Revenue Ruling is issued under the authority of LAC 61III.101(C). A Revenue Ruling is written to provide
guidance to the public and to Department of Revenue employees. It is a written statement issued to apply principles
of law to a specific set of facts. A Revenue Ruling does not have the force and effect of law and is not binding on
the public. It is a statement of the department's position and is binding on the department until superseded or
modified by a subsequent change in statute, regulation, declaratory ruling, or court decision.

Revenue Ruling No. 13-003
Page 2 of 2

new parts was incidental to and a part of the repair contract…Consequently, WYESCO was not
selling parts to IP, but was consuming them in making the requested repairs.”
La. R.S. 47:301(10)(a)(iii) provides an exclusion from sales tax for items of tangible personal
property which are sold for the purpose of lease or rental. The statute does not provide an
exclusion for repair parts or materials necessary for the repair or maintenance of lease or rental
equipment subject to the exclusion found in La. R.S. 47:301(10)(a)(iii). As such, regardless of
whether such items are purchased and installed by the owner of the lease or rental equipment or
installed as a repair service which is separately billed by a third party, repair parts and materials
for lease or rental equipment do not qualify for the exclusion found in La. R.S.
47:301(10)(a)(iii).
Conclusion:
Repair parts and materials purchased for the repair or maintenance of lease or rental equipment
does not qualify for the exclusion found in La. R.S. 47:301(10)(a)(iii).
Tim Barfield
Executive Counsel

A Revenue Ruling is issued under the authority of LAC 61III.101(C). A Revenue Ruling is written to provide
guidance to the public and to Department of Revenue employees. It is a written statement issued to apply principles
of law to a specific set of facts. A Revenue Ruling does not have the force and effect of law and is not binding on
the public. It is a statement of the department's position and is binding on the department until superseded or
modified by a subsequent change in statute, regulation, declaratory ruling, or court decision.