If a contractor rents equipment for a government job and later sells it (leaving it on-site instead of taking it back), does it become tax-exempt "consumed" material instead of taxable equipment?

Plain-English summary

Company A rented crane mats to Company B for a project Company B had with the Texas Department of Transportation. At the end of the project, Company A sold the crane mats to Company B, and the mats were left on the project rather than being removed. Company B, treating the mats as "consumed" on the job, requested a sales tax credit on four invoices, and Company A had provided an exemption certificate covering both the rental and the sale of the mats.

The Comptroller denied the credit. Tax Code § 151.311(a) exempts tangible personal property incorporated into realty belonging to a governmental or other exempt entity under §§ 151.309/151.310. But § 151.311(b) specifically excludes machinery and equipment from that exemption — it only reaches property that is "necessary and essential" and "used or consumed" at the project, which crane mats (equipment used to support a crane on a job site) are not. The statute's completely-consumed test in § 151.311(d) is explicit: property is "completely consumed" only if, after one use, it's used up or destroyed — and property rented or leased for use in performing the contract categorically cannot be completely consumed for this purpose, even if it's later sold and left behind rather than physically removed.

Because the crane mats are equipment, not consumable material, Company B was not entitled to the requested credit.

What this means for you

Contractors on government projects who rent, then buy, equipment used on-site

Selling rented equipment to your customer and leaving it on the job site does not convert it into exempt "consumed" material — the equipment exclusion in § 151.311(b) and the completely-consumed test in § 151.311(d) both look at the item's nature (equipment vs. genuinely single-use material) and its rental/lease history, not whether it physically leaves the site afterward.

Businesses claiming the § 151.311 government-contractor exemption

Remember the exemption reaches only tangible personal property that is incorporated into realty or necessary/essential and consumed on the project — machinery and equipment are carved out entirely, and anything ever rented or leased for the job is disqualified from the "completely consumed" category by definition.

Accountants and tax professionals

This letter is a clean, short illustration of § 151.311(d)'s bright-line rule: rented/leased property cannot be "completely consumed" no matter what happens to it afterward — worth citing whenever a client tries to reclassify rental equipment as consumable job material after the fact.

Common questions

Q: Can equipment ever qualify for the § 151.311 exemption for property incorporated into a government entity's realty?
A: No — § 151.311(b) specifically excludes machinery and equipment from this exemption, regardless of how the property is later used or disposed of.

Q: Does leaving equipment on the job site after the contract ends make it "consumed"?
A: No. The completely-consumed test requires the item to be used up or destroyed after a single intended use — and property that was rented or leased for the job cannot meet that test at all, per § 151.311(d).

Q: Does selling rented equipment to the customer at the end of a job change the tax treatment?
A: Not on these facts — the equipment's classification as equipment, and its rental history, control the outcome regardless of a later sale.

Q: Can any contractor rely on this exact refund denial?
A: Not directly. This is a Texas STAR letter ruling binding on the Comptroller only for the taxpayer it addresses (34 Tex. Admin. Code Rules 3.1, 3.10); confirm your own equipment and contract facts with a tax professional.

Citations and references

Statutes:

• Tex. Tax Code § 151.311(a) (exemption for TPP incorporated into exempt entity's realty)
• Tex. Tax Code § 151.311(b) (machinery/equipment exclusion; necessary-and-essential consumable supplies)
• Tex. Tax Code § 151.311(d) (completely consumed definition)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200011863L

Original ruling text

November 2, 2000

Dear **:

Your request for a ruling on the refund request submitted to your firm
("COMPANY A") by ** ("COMPANY B") was forwarded to me for response.

In the latter part of 1999 and the early part of 2000, COMPANY A entered into a
contract with COMPANY B for the rental of crane matts on a project COMPANY B
had with the Texas Department of Transportation. At the end of the project the
crane matts we sold to COMPANY B and were left on the project. COMPANY B
considered the crane matts consumed on the project.

COMPANY B requested a credit for sale tax on four invoices. You were provided
an exemption certificate for both the rental and sale of the crane matts.

Texas Tax Code Section 151.311(a) exempts tangible personal property
incorporated into realty belonging to an organization exempt under Section
151.310 or 151.309. Texas Tax Code Section 151.311(b) specifically excludes
machinery and equipment from qualifying for exemption; but does exempt tangible
personal property that is necessary and essential and that used or consumed at
the project.

Texas Tax Code Section 151.311(d) states: "tangible personal property is
completely consumed if after being used once for its intended purpose it is
used up or destroyed. Tangible personal property that is rented or leased for
use in the performance of the contract cannot be completely consumed for
purposes of this section." (Emphasis added.)

COMPANY B is not entitled to a credit on the crane matts because they are
equipment.

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. My email address is
. You may write to Tax Policy Division,
Comptroller of Public Accounts, P.O. Box 13528, Austin, Texas 78711-3825.

Sincerely,

Eddie C. Washington
Tax Policy Division

cc: **

Carla Tyson
Sales Tax Refund Verification Section
Revenue Accounting Division
Comptroller of Public Accounts