Does Texas's use tax exemption for repair and replacement parts on licensed self-propelled carriers extend to pipeline components purchased out of state and installed in Texas?

Plain-English summary

A pipeline company sought a use tax refund on a long list of items it purchased from out-of-state vendors and installed in Texas on its pipeline system — repair and replacement parts, valves, couplings, flow meters, monitoring instruments, safety barriers, filters, and dozens of other pipeline accessories, plus some evaluation/design services.

The company's theory rested on Tax Code § 151.330(i), which exempts from use tax "tangible personal property acquired outside this state for use as a repair or replacement part for and actually affixed in this state to a self-propelled vehicle that is used as a licensed and certificated carrier of persons or property." Rule 3.297 similarly limits this exemption to self-propelled carrier devices (like aircraft, vessels, and motor vehicles), not accessories affixed to them — and even provides a separate, narrower exemption specifically for aircraft component parts.

The Comptroller rejected extending this to pipeline parts. A pipeline is not a self-propelled vehicle, and neither § 151.330(i) nor Rule 3.297 exempts component, replacement, or repair parts for pipelines — case law backs this up: Lone Star Gas Co. v. Bullock held pipe stored along a right-of-way before assembly into a pipeline was taxable, and Bullock v. Shell Pipeline similarly confirmed the pipe itself wasn't exempt as a carrier device (even though Shell qualified as a licensed and certificated carrier for other purposes). Southwest Airlines v. Bullock reinforced the general principle that the carrier exemption attaches to the carrier device itself, not to every accessory purchased by a carrier entity.

Instead, pipelines are treated as improvements to realty. Installing computers and related monitoring equipment on an existing line, and replacing pipeline components, are taxable nonresidential real property repair, remodeling, or restoration (citing Hearing No. 28,327, where installing cathodic protection systems wired to adjacent pipelines was ruled taxable remodeling). One narrow carve-out: services for evaluating a wastewater treatment system, characterizing waste, and system design did not appear taxable, falling instead under the nontaxable information-services rule, 34 TAC § 3.342(a)(5)(B).

What this means for you

Pipeline operators buying components out of state

Don't expect the self-propelled carrier use tax exemption to cover pipeline parts bought outside Texas and installed here — Texas use tax applies to those purchases because a pipeline is a real property improvement, not a self-propelled carrier device.

Motor carriers, airlines, and vessel operators

The self-propelled carrier exemption is narrower than it might sound — per Southwest Airlines v. Bullock, it attaches to the vehicle/vessel/aircraft itself, not to every piece of equipment (baggage carts, monitors, tools) a carrier entity happens to buy.

Engineering and environmental consultants to pipeline operators

Genuinely nontaxable information services — like wastewater treatment system evaluation, waste characterization, and system design — can stay outside the taxable real-property-repair analysis even on a pipeline project, if they qualify under the information services rule.

Common questions

Q: Are pipelines "carrier devices" eligible for the self-propelled vehicle repair-parts exemption?
A: No. The exemption in § 151.330(i) and Rule 3.297 is limited to self-propelled vehicles, aircraft, and qualifying commercial vessels — not pipelines, which are stationary improvements to realty.

Q: Is installing monitoring equipment on an existing pipeline taxable?
A: Yes — per this letter and Hearing No. 28,327, installing computers, cathodic protection systems, and similar equipment on an existing pipeline is taxable nonresidential real property repair, remodeling, or restoration.

Q: Does being a "licensed and certificated carrier" exempt everything a carrier company buys?
A: No. Per Southwest Airlines v. Bullock, the exemption applies to the carrier device itself, not to every accessory, tool, or piece of equipment purchased by the carrier entity.

Q: Can any pipeline company 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 purchases and installation facts with a tax professional.

Citations and references

Statutes, rules, and cases:

• Tex. Tax Code § 151.330(i) (self-propelled carrier repair/replacement parts exemption)
• 34 Tex. Admin. Code § 3.297(a)(1), (a)(3), (d) (licensed and certificated carrier)
• 34 Tex. Admin. Code § 3.342(a)(5)(B) (information services)
• 34 Tex. Admin. Code § 3.357 (nonresidential real property repair/remodeling)
• Lone Star Gas Co. v. Bullock (7804C0111D12)
• Bullock v. Shell Pipeline (8405C0604D10)
• Southwest Airlines v. Bullock (9001C0976B11)
• Comptroller's Hearing No. 5499 (1971); Hearing No. 33,424 (2000); Hearing No. 28,327 (1992)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200011897L

Original ruling text

DATE: November 15, 2000

TO: Gayla Waller, ** Audit

FROM: Eddie C. Washington, Tax Policy

SUBJECT: PIPELINE COMPANY/Refund Request on Carrier Devices

Issue: Whether the exemption for pipeline carrier devices applies to purchases
of all tangible personal property acquired outside Texas for use in Texas to
transport persons or property.

Facts: A pipeline carrier purchased numerous items for vendors located outside
Texas. Purchases include: repair and replacement parts for the pipeline and
pipeline accessories, e.g., valves and valve products, couplings, pipe nipples,
tubing, plugs, flow meters, transducers, coaxial transducer cables, flow
computers and software license; safety barriers, enclosures, valves with
actuator, clamps and rings; turbine meter, pigs and pig accessories, pump
accessories (e.g., motor pedestals), neoprene gaskets, steel washers, poly
sleeves; Chessell indicator with alarm relays and red light displays, automatic
online flash point monitor. recovery and re-injection system pulsation dampner
power supply; separator element, coalescer filter element aluminum enclosures,
input boards, CPU boards, communications modules hydrant monitors, steam nozzle
(1,000 gallons per minute), repair to flow tees replace bus duct assembly
switchgear structure with lugs motor or pump repairs flume sand, pipe bending
space heater with thermostat clay canister filter vertical jacking screws
evaluation of wastewater treatment system, characterization of waste, system
design.

Definitions: "Licensed and certificated carrier" means: "a person authorized by
the appropriate United States agency or by the appropriate state agency within
the United States to operate an aircraft, vessel, train, motor vehicle, or
pipeline as a common or contract carrier transporting persons or property for
hire in the regular course of business." Rule 3.297(a)(1)

Texas Tax Code Section 151.330(i) states: "The storage or use of tangible
personal property acquired outside this state for use as a repair or
replacement part for and actually affixed in this state to a self-propelled
vehicle that is used as a licensed and certificated carrier of persons or
property is exempted from the use tax imposed by Subchapter D." (Emphasis
added.)

Rule 3.297(a)(3) states: "Except as provided under subsection (d) of this
section, taxable items brought into this state to be assembled into licensed
and certificated carrier devices are not exempt from the taxes imposed by the
Tax Code, Chapter 151, Subchapter D." (Emphasis added.)

Rule 3.297(d) provides a specific exemption for component parts that are
affixed to aircraft used as a licensed and certificate carrier as well as
certain tools, and electricity and natural gas used in repairing, remodeling,
maintaining such aircraft. Electricity and natural gas are also exempt when
used in the off-wing repair of jet turbine engines for aircraft licensed and
certificated as a carrier.

Court Cases:

Lone Star Gas Co. v. Bullock (7804C0111D12): The Court of Appeals reversed the
trial court's decision exempting from use tax pipe that Lone Star Gas bought in
Europe for use in assembling a pipeline in Texas. The court ruled that Lone
Star Gas stored the pipe along the pipeline right-a-way before it was assembled
into the pipeline.

Bullock v. Shell Pipeline (8405C0604D10): The Court of Appeals disagreed with
the Comptroller's argument that Shell was not a licensed and certificated
carrier and that the pipe acquired outside Texas was exempt from use tax. The
court held that the Shell had a permit from the Texas Railroad Commission to
operate a pipeline as a licensed and certificated carrier. The court also held
that Shell did not store the pipe before it was assembled into a pipeline
because only a sufficient amount of pipe was delivered that could be assembled
(welded into sections, coated at joints and put into the ditch) into the
pipeline.

Southwest Airlines v. Bullock (9001C0976B11): The Court of Appeals upheld the
trial court's judgement that the Comptroller's policy that the term "licensed
and certificated carrier" applies to the carrier device and not to the entity
and that not all purchases of tangible personal property purchased by Southwest
Airlines were exempt. The court upheld the Comptroller' tax assessment on
Southwest Airlines' purchases of beverage carts, baggage equipment, mobile belt
conveyors, self-propelled baggage tugs, metal detectors, automatic ticket
machines, oxygen, nitrogen, hydraulic fluid, etc.

AG Opinions and Hearings:

Hearing No. 5499 (1971): The Comptroller held that imported steel pipe, pumping
equipment and other components of pipeline carrier's pipeline system that were
acquired outside Texas for use in Texas were not exempt from state and city use
tax. (7111H0220D11)

Hearing 33,424 (2000): The Comptroller held that converter dollies, decal
packages, Webb kits, and airshields purchased outside Texas for used by a motor
carrier were not exempt as carrier devices. The Comptroller found that: (1) a
converter dolly is a device with connecting and supporting wheels and axles
used to allow a tractor to pull more than one trailer; (2) packages of decals
that show the company name Interstate Commerce Commission identification
number, etc., were affixed to Petitioner's trailers outside Texas before the
trailers were used; (3) Webb kits that permit in-cab measurement of fuel
pressure, oil and water levels, and air cleaner restrictions were installed in
North Carolina; and (4) airshields, air directors, side fairings and mounting
kits were installed in Texas. The Comptroller decided that the exemption in
Rule 3.297(a)(1) applies only to the self-propelled carrier device (tractor),
not accessories that are affixed to the carrier device. (200006

Response: Texas Tax Code Section 151.330(i) and Rule 3.297 exempt only the
carrier device (the pipeline). The statute and Rule 3.297 provide exemptions
for repair, replacement and component parts for self-propelled vehicles and
aircraft that are licensed and certificated carriers of persons and property
and vessels of eight or more tons displacement that are used in interstate
coastwise and foreign commerce. The statute and Rule 3.297 exempt repair and
replacement parts for self-propelled vehicles that are licensed and
certificated carriers and for component parts of commercial vessels of eight or
more tons displacement. The statute does not exempt component, replacement or
repair parts for pipelines. The exemptions provided for repair, replacement or
component parts for other carrier devices do not apply to pipelines.

Pipelines are considered improvements to realty. Services performed to repair,
remodel or restore the pipeline are taxable as nonresidential real property
repair, remodeling or restoration. The installation of computers and related
equipment on the existing line and the replacement of pipeline components are
taxable real property repair, remodeling or restoration. See Hearing No.
28,327 (9206147H) in which the administrative law judge ruled that the
installation of cathodic protection systems that were connected to adjacent
pipelines by wires constituted nonresidential real property remodeling. Do
note that Rule 3.357 classifies painting as nonresidential repair unless it
otherwise qualifies as real property maintenance.

The purchase of services for the evaluation of wastewater treatment system,
characterization of waste, system design do not appear to be taxable per Rule
3.342(a)(5)(B) concerning information services.

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