Does the Texas exemption for labor and materials to repair large commercial vessels (Rule 3.297(b)(2)) cover charges for renting equipment like scaffolds used during the repair?

Plain-English summary

A company that rents scaffolds asked the Comptroller about a customer's exemption claim. The customer had rented scaffolds to work on repairing a commercial vessel and issued an exemption certificate, seeking a sales tax refund on the scaffold rental charges under Rule 3.297(b)(2) — the exemption for labor to repair vessels (or vessel machinery, equipment, or component parts) over eight tons displacement used exclusively for commercial purposes.

The Comptroller confirmed the scaffold rental was fully taxable, including the charges for delivery, set-up, dismantling, and pick-up. The reasoning:

• Rule 3.297(b)(2) exempts labor and materials used to repair or renovate a qualifying commercial vessel.
• But "material" does not include equipment — hand tools, scaffolds, and similar items are equipment, not materials, even when used in an otherwise-exempt vessel repair job.
• The exemption's material category covers things that are consumed or applied in the repair, like sand used in sandblasting or solvents — but not the equipment used to apply them, like a sandblasting machine (or, here, a scaffold).
• The rule's reference to exempt "equipment" means machinery/equipment that becomes a component part of the vessel itself — the Comptroller's example is a hoist that is bolted or welded to the ship to load cargo — not equipment merely rented and used by the repair crew.
• Neither Tex. Tax Code § 151.329(3) nor Rule 3.297(b)(2) exempts machinery or equipment used in repairing or renovating a qualifying commercial vessel; only the labor and consumed materials are exempt.

What this means for you

Scaffold and equipment rental companies

Charging tax on the full scaffold rental price — including delivery, setup, dismantling, and pickup — is correct even when your customer is using the scaffold on an otherwise tax-exempt vessel repair job. The vessel-repair exemption doesn't flow through to your equipment rental charge.

Marine repair contractors and vessel owners

The vessel-repair exemption under Rule 3.297(b)(2) is narrower than it might sound: it covers your repair labor and materials that get consumed in the job (sand, solvents, and similar), but not rented or owned equipment like scaffolds, hand tools, or a sandblasting machine — those stay taxable.

Accountants and tax professionals

Useful for drawing the materials-vs-equipment line under Rule 3.297(b)(2): the rule's own "equipment" carve-out is limited to machinery/equipment that becomes a component part of the vessel (e.g., a welded-on hoist), not equipment used by the repair crew to perform the work.

Common questions

Q: Is scaffold rental exempt when the scaffold is used to repair a tax-exempt commercial vessel?
A: No. The vessel-repair exemption covers labor and consumed materials, not equipment like scaffolds — the full rental charge, including delivery/setup/dismantling/pickup, is taxable.

Q: What counts as an exempt "material" under Rule 3.297(b)(2)?
A: Things consumed or applied during the repair, such as sand used in sandblasting or solvents — not the equipment used to apply them.

Q: Does the rule's mention of exempt "equipment" ever apply?
A: Only to machinery/equipment that becomes a component part of the vessel itself, like a hoist bolted or welded to the ship — not to tools or equipment merely used by the repair crew.

Q: Can I rely on this letter for my own situation?
A: No. This opinion is based on the facts presented, and additional or different facts may change the opinion; it can be relied on only by the taxpayer it was issued to.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.329(3) (sales tax exemption for repair of certain vessels)
• 34 Tex. Admin. Code Rule 3.297(b)(2) (labor to repair vessels — exemption covers labor and materials, not equipment)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200002067L

Original ruling text

February 23, 2000

Dear **:

Thank you for your recent letter concerning the taxability of scaffolds rented
to COMPANY A.

This customer issued an exemption certificate along with a request for a
$** sales tax refund. The customer spoke with Kimberly Harris of
our office who cited Rule 3.297(b)(2) as the basis for the exemption claim.
Rule 3.297(b)(2) states: "Sales or use tax is not due on labor to repair
vessels, or machinery, equipment, or component parts of vessels in excess of
eight tons displacement that are used exclusively for commercial purposes."

The comptroller has advised you that the total amount you charge your customers
for renting scaffolds is taxable, including charges for delivery, set-up,
dismantling and pick-up.

The exemption in Rule 3.297(b)(2) exempts labor and materials used to repair or
renovating vessels that are of eight or more tons displacement that are used
exclusively for commercial purposes. The term material does not included
equipment, including hand tools, scaffolds, etc. This exemption applies to
materials such as sand used in sandblasting, solvents, etc., but not to
equipment such as a sandblasting machine. The reference to equipment in this
section of the rule is to machinery and equipment that are component parts of
the vessel itself, e.g., a hoist that is bolted or welded to the ship used to
load cargo.

Neither the sales tax law (Texas Tax Code Section 151.329(3) nor Rule
3.297(b)(2) exempt machinery or equipment used in repairing or renovating
commercial vessels of 8 or more tons displacement.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

You may call me toll free at 1-800-531-5441, extension 3-4683, if you have any
questions or need more information. You may write to Tax Policy Division,
Comptroller of Public Accounts, P.O. Box 13538, Austin, Texas 78711-3825.

Sincerely,

Eddie C. Washington
Tax Policy Division

cc: Kimberley Harris, Tax Assistance