Does a company owe Texas use tax on a barge and tugboat it uses to haul waste from Louisiana to Texas, if it doesn't own both vessels?

Plain-English summary

This letter is a correction to an earlier ruling after the taxpayer supplied more accurate facts. A company ("COMPANY A") received oil waste collection services from a third party. In a prior letter (November 6, 2000), the Comptroller had concluded the waste collection service itself wasn't taxable because it was performed outside Texas, and that the third party would owe Texas use tax on its lease of a tugboat and barge unless each vessel was 8+ tons and leased from the vessel's own builder — based on an understanding, from a phone call, that the third party leased both vessels.

The taxpayer's follow-up email corrected that assumption: the third party actually owns the barge outright and separately contracts with another company for a manned tugboat (rather than leasing both). The operational facts: the third party picks up waste from COMPANY A's Louisiana dump site, transports it by barge/tugboat to COMPANY A's Texas dump site, COMPANY A unloads it in Texas, and the vessels return to Louisiana.

With ownership (not leasing) as the correct fact, the Comptroller revised the use-tax analysis:

• The barge: since the third party owns it, ordinary use tax applies (not a lease-tax analysis) unless the barge is 8+ tons displacement, purchased from the builder, and used exclusively for commercial purposes (Rule 3.297(b)(1)). Even without that exemption, the third party can still avoid Texas use tax by showing the barge was used outside Texas for a year or longer before it first entered the state (Rule 3.346(c)(5)) — the "one-year rule" that presumes property purchased and used outside Texas for at least a year wasn't purchased for use in Texas.
• The tugboat: because the third party is only paying another company for a manned tugboat service (not owning or leasing the vessel itself), the third party owes no Texas use tax on that charge. But the company that actually furnishes the tugboat may have its own Texas use tax liability on the tugboat, unless the same 8-ton/builder-purchase exemption or the one-year rule applies to it.

What this means for you

Marine transport and waste-hauling companies operating vessels into Texas

Whether you own, lease, or merely charter-in a manned vessel changes your Texas use tax exposure significantly — get the actual ownership structure right before relying on a Comptroller ruling, since (as this letter shows) an incorrect factual assumption from an informal phone call can flip the analysis entirely.

Companies chartering vessels with an operator (manned charters)

Paying for a manned vessel service (crew included) is generally treated differently from owning or bareboat-leasing the vessel yourself — the charge for the manned service itself isn't necessarily subject to use tax on your end, though the vessel's actual owner may have exposure.

Accountants and tax professionals

This letter is a good illustration of two independent escape hatches from Texas use tax on out-of-state-purchased vessels: (1) the commercial-vessel exemption (8+ tons, bought from builder, exclusively commercial use) and (2) the one-year prior out-of-state-use presumption — either can apply even when the other doesn't.

Common questions

Q: Does owning versus leasing a vessel change the Texas use tax analysis?
A: Yes significantly — this letter corrects an earlier conclusion once it learned the third party owned (rather than leased) the barge, shifting the analysis to ordinary use tax rules and the available exemptions.

Q: What exemption might apply to a barge used to haul waste into Texas?
A: Rule 3.297(b)(1) exempts vessels of 8+ tons displacement purchased from the builder and used exclusively commercially. Separately, Rule 3.346(c)(5) presumes no Texas use tax is due if the vessel was used outside Texas for a year or more before first entering the state.

Q: Does chartering a manned tugboat create Texas use tax liability for the charterer?
A: No, per this letter — paying another company for a manned tugboat service doesn't create Texas use tax liability for the party paying for that service; the tugboat's owner may have its own liability instead.

Q: Can any waste-hauling or marine transport company rely on this letter?
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 vessel ownership/leasing structure with a tax professional.

Citations and references

Statutes and rules:

• Comptroller Rule 3.297(b)(1) (commercial vessel exemption)
• Comptroller Rule 3.346(c)(5) (use tax — one-year out-of-state use presumption)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200101007L

Original ruling text

January 19, 2001

Subject: COMPANY A - Waste Disposal Services

Dear **:

Thank you for your email that provides the actual facts concerning the services
provided by a third party to COMPANY A.

In my November 6, 2000 letter, I concluded that the oil waste collection
services provided by a third party to ** (COMPANY A) were not
taxable because the service was performed outside Texas.

I also concluded that the third party would owe Texas use tax on the lease of
the vessels (tugboat and barge) used in providing the services unless each
vessel was of eight or more ton displacement and leased from the vessel's
builder(s). I did point out that taxable items purchased outside Texas and
used outside Texas for a year or longer before entering Texas are presumed not
purchased for use in Texas. My conclusions were based on information provided
in a telephone conversation with ** before she sent the request for
a letter ruling. My understanding from the telephone conversation was that the
third party leased both the tugboat and barge.

Your email states that the third party owns the barge and contracts with
another company for the manned tugboat. The third party picks up the waste
from COMPANY A's dump site in Louisiana and transports it to COMPANY A's
dumpsite in Texas. COMPANY A will unload the waste in Texas and the barge and
tugboat will return to Louisiana.

My original answer to Question 2 is modified as follows:

The service provider (third party) will owe Texas use tax on the barge unless
it is of eight or more ton displacement and was purchased from the builder and
is used exclusively for commercial purposes [Rule 3.297(b)(1)]. Texas tax may
not be due even if the barge does not qualify for exemption under Rule
3.297(b)(1); however, the third party may show that the barge was used outside
Texas for a year or longer when it first enters Texas [Rule 3.346(c)(5)
concerning use tax]. The third party does not owe Texas use tax on the charge
made by the company furnishing the tugboat with an operator. The company may,
however, incur a Texas use tax liability unless one of the provisions in the
preceding paragraph applies to the tugboat.

The referenced Comptroller rules are available at:
. 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