Does an Air Force base have to collect Texas sales tax when it sells a utility system, and more generally, is the U.S. Air Force required to collect Texas sales tax on sales of taxable items?

Plain-English summary

Someone asked the Comptroller about the taxability of the sale of a utility system by an Air Force installation (base). The answer rests on two independent grounds:

1. Utility systems are real property, not taxable items. Water, wastewater, electric, and gas systems are considered improvements to realty. Texas Tax Code § 151 imposes sales/use tax on "taxable items" — tangible personal property and taxable services — but sales of real property aren't taxable transactions at all under §§ 151.005, 151.051(a), 151.009, and 151.010.
2. Independently, the U.S. Air Force isn't required to collect Texas sales tax on taxable items in the first place. Under Tax Code § 151.307(a), a seller isn't required to collect Texas sales tax if federal law or the U.S. Constitution exempts the sale. The U.S. Constitution's Supremacy Clause (Article VI, Clause 2) makes federal law supreme, and the Buck Act (4 U.S.C. § 107(a)) specifically prohibits states from taxing purchases or sales of tangible personal property by the United States or its instrumentalities.

So even setting aside the real-property point, a federal instrumentality like the Air Force generally doesn't have to collect Texas sales tax when it sells taxable items.

What this means for you

Businesses buying from or selling to federal installations

If you're buying a utility system or similar realty-attached asset from a federal installation, the sale isn't a taxable transaction under Texas sales/use tax law — it's a real property transaction. Separately, if you're buying tangible personal property (not realty) from a federal agency or instrumentality, expect that the seller generally isn't required to collect Texas sales tax, per the Buck Act and § 151.307(a).

Government contractors and installation operators

This letter is a useful two-track reference: know which ground applies to your transaction (real property vs. federal-instrumentality exemption), since they lead to the same "no tax collection" result through different legal routes and might matter for how you document the transaction.

Accountants and tax professionals

Note that § 151.307(a)'s exemption is about the seller's collection obligation when federal law itself preempts the collection — distinct from, and layered on top of, the ordinary real-property-is-not-a-taxable-item analysis. Both independently support the no-tax conclusion in this fact pattern.

Common questions

Q: Does Texas sales tax apply when an Air Force base sells a utility system?
A: No. Utility systems are improvements to realty, and Texas sales/use tax does not apply to real property sales.

Q: Is the U.S. Air Force required to collect Texas sales tax when it sells tangible personal property?
A: Generally no — under Tax Code § 151.307(a) and the federal Buck Act (4 U.S.C. § 107(a)), states can't require federal instrumentalities to collect state sales tax on such sales.

Q: What is the Buck Act?
A: A federal law (4 U.S.C. § 107(a)) that, among other things, limits states' ability to tax purchases or sales of tangible personal property by the United States or its instrumentalities.

Citations and references

Statutes and rules:

• Tex. Tax Code §§ 151.005, 151.051(a), 151.009, 151.010 (imposition of tax on sales of taxable items)
• Tex. Tax Code § 151.307(a) (exemption where federal law or the U.S. Constitution exempts the sale)
• U.S. Const. art. VI, cl. 2 (Supremacy Clause)
• 4 U.S.C. § 107(a) (Buck Act)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200007473L

Original ruling text

July 10, 2000

Dear **:

Thank you for your recent email concerning the taxability of the sale of a
utility system by an airforce installation (base).

Utility (water, wastewater, electric, gas, etc.) systems are considered
improvements to realty (real property). Texas Tax Code Section 151 imposes a
tax on sales of taxable items (tangible personal property and taxable
services). [Texas Tax Code Sections 151.005, 151.051(a), 151.009, and 151.010].
Transactions involving the sale of real property are not subject to Texas sales
and use tax.

The United States Air Force is not required to collect Texas sales tax on sales
of taxable items if a federal law or the United States Constitution exempts
such sales. See Texas Tax Code Section 151.307(a). Article 6, Clause 2 of the
United States Constitution makes the Constitution and the Laws of the United
States the supreme Law of the Land. Title 4, United States Code Section 107(a)
prohibits states from imposing tax on purchases or sales of tangible personal
property by the United States or any of its instrumentalities.

The referenced Comptroller rule is available by clicking on the following URL:
. Click on
State Tax Rules and scroll down to the referenced rule(s).

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 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 13528, Austin, Texas 78711-3825. My
email address is .

Sincerely,

Eddie C. Washington
Tax Policy Division