How does Texas sales tax apply to a rent-to-own company's agreements — are they taxed as financing leases or operating leases, who's the responsible seller, and what happens when a customer takes the rented item out of state?

Plain-English summary

A Utah-based rent-to-own finance company partners with Texas retail dealers (furniture, mattress, and tire stores) to offer "rent-to-own" payment plans to customers who don't qualify for conventional financing. Under the arrangement, the customer signs a contract with the finance company (not the dealer) structured as a series of 60-day rental terms; the customer can pay it off early, let it run to ownership, or (rarely, in practice) return the item. The contract explicitly says the customer is acquiring the item "as our agent" — meaning the company, not the customer, legally owns it until paid off. The company asked the Comptroller to sort out several tax questions about this structure.

Is this a taxable "financing lease" with an interest-charge exclusion, or a fully taxable "operating lease"? It's an operating lease. Texas treats a lease as a special, more favorable "financing lease" only if title must transfer at the end, or if there's a purchase option priced at a nominal fraction of fair market value — neither is true here (the customer has a right, not an obligation, to eventually own the item, and payoff pricing isn't nominal). That means the whole rental stream — including a $39 "origination" fee and any charges the company calls "interest" — is fully taxable as ordinary rental income, with no exclusion for finance or interest charges (that exclusion only applies to real financing leases).

Who's the seller responsible for collecting tax — the dealer or the finance company? The finance company. Its own contract language designates the customer as its purchasing agent buying the item from the dealer on the company's behalf — meaning the company effectively "stands in the shoes" of the buyer at that first purchase, and can buy the item tax-free from the dealer using a resale certificate (three specific documentation methods are laid out for how to do this cleanly). The company then owes tax on what it charges the customer under the rental agreement, because it's a "seller" under Texas's retailer definition once it starts renting the item out.

What if an out-of-state customer signs the deal in Texas, takes the item there, then drives it home? Texas tax is due on the entire first lease term of the rental (here, the first 60-day period) because the lease was executed and delivery happened in Texas — regardless of where the item ends up being used afterward. But once that first term ends and the customer renews the agreement from out of state, no further Texas tax applies to those renewal payments, as long as the item doesn't come back into Texas.

What this means for you

Rent-to-own and lease-to-own finance companies

Structuring your agreements around renewable short-term rental periods, with ownership as an option rather than a guarantee, generally makes you an "operating lease" for Texas tax purposes — meaning the entire payment stream is taxable with no interest-charge carve-out, even if you market part of the charge as financing or interest. Also confirm your own contract language: if it designates the customer as your purchasing agent, that structure makes you the taxable seller/lessor responsible for collection, not the retail dealer who originates the sale.

Retail dealers partnering with rent-to-own finance companies

If your customer is contractually acting as an agent for a finance partner (not buying for themselves), you can generally sell to that customer tax-free via a resale certificate tied to the finance company, shifting the ultimate tax-collection duty downstream to the finance company's rental charges instead of your retail sale.

Businesses with customers who take delivery in Texas and later relocate

The "first lease term is taxable, later out-of-state renewals aren't" rule (Rule 3.294(f)(1)(A)) is a useful sourcing principle for any Texas-executed lease where the property later leaves the state — but note it only protects renewal terms after the property has actually left and stays gone; if the item re-enters Texas, tax comes back into play.

Accountants and tax professionals

This ruling is a thorough worked example of the financing-lease vs. operating-lease test (Rule 3.294(a)(1)) alongside the presumptive-financing-lease thresholds (75%-of-economic-life / <10%-residual-value tests) that didn't apply here — useful as a checklist for any client's lease-to-own or rent-to-own product design.

Common questions

Q: Why doesn't the $39 origination fee or the "interest" language get excluded from tax?
A: Because the finance/interest-charge exclusion in § 151.007(c)(4) only applies to genuine financing leases (or conditional sales contracts) — since this is an operating lease, everything the company calls "interest" is actually just part of the taxable rental sales price.

Q: Does the customer ever pay tax twice — once when the dealer sells to the finance company's agent, and again on the rental payments?
A: No — the initial dealer-to-company purchase (via the customer acting as agent) can be done tax-free with a resale certificate specifically because the company is buying for resale (i.e., to rent out); tax is then collected once, on the rental payments to the actual end customer.

Q: Is this ruling specific to rent-to-own furniture and tire financing?
A: The facts here involve furniture, mattress, and tire dealers, but the operating-lease/financing-lease and agency-purchase analysis could apply to other rent-to-own product categories with similar contract terms.

Q: Does this ruling apply to my rent-to-own or lease-to-own business?
A: Not automatically. This is a private letter ruling binding only on the Comptroller as to this taxpayer's specific contract terms. Note also the ruling's own ALERT that Rule 3.285's resale-certificate mechanics were amended effective 11/1/2017 to loosen a prior "resale-only" purchasing restriction — confirm current resale-certificate procedures with a Texas tax professional before relying on the specific documentation steps described here.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.051, § 151.010, § 151.009 (sales tax imposition; taxable item; tangible personal property)
• Tex. Tax Code § 151.007(a)(2), (c)(4) (sales price; finance/interest charge exclusion — financing leases only)
• Tex. Tax Code § 151.008, § 151.052 (seller/retailer definition; collection duty)
• Tex. Tax Code § 321.201(a) (local sales tax computation)
• 34 Tex. Admin. Code § 3.294(a)(1), (a)(2), (a)(4), (f)(1)(A) (financing vs. operating lease; sourcing for leases executed in Texas)
• 34 Tex. Admin. Code § 3.285(c)(4) (blanket resale certificates); § 3.286(d)(2)(B) (seller's responsibilities)
• Tex. Fin. Code § 345.001(6)(C) (rental-purchase agreements excluded from retail installment contracts)
• Comptroller's Decision No. 47,797 (2008); STAR Accession No. 200703903L (2007); STAR Accession Nos. 8510T0668A04, 9107L1119F07, 8804L0879D01, 8808L0898B09 (1985-1991)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/202008013L

Original ruling text

ALERT: Rule 3.285 (as amended), Resale Certificates; Sales for Resale, effective 11/1/2017 no longer requires a seller to only purchase items for resale before the seller may issue a blanket resale certificate to its supplier.

August 19, 2020

RE: Private Letter Ruling No. PLR20190211103116

**, Taxpayer No. **

Dear **:

We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters. [ENDNOTE: (1)] We are responding to your request dated March 20, 2018. You also provided additional information via emails dated April 16, 2018; April 24, 2018; Oct. 3, 2018; Oct. 19, 2018; Feb. 7, 2019; Feb. 12, 2019, and Sept. 19, 2019, as well as via teleconference April 19, 2018. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

You requested a determination regarding the treatment of **’s (Taxpayer’s) “rent-to-own” contracts under Texas sales and use tax and whether the exclusion for finance or interest charges provided by Section 151.007(c)(4) (“Sales Price” or “Receipts”) applies to the sales price of the items purchased under the contracts. In a supplemental request, you asked about the ramifications of an out-of-state resident entering into a Customer Agreement in Texas, taking delivery in Texas, and driving the property out of state. Finally, in another supplemental request, you suggested that the sales tax responsibility rests with the Dealer, not Taxpayer.

Facts Presented

Taxpayer is a Utah-based limited liability company with facilities exclusively within the state of Utah. Taxpayer’s sole presence in Texas consists of traveling representatives who meet with Texas sellers (Dealers) of consumer goods such as furniture, mattresses, and tires. Dealers offer Taxpayer’s payment options to customers who typically do not qualify for conventional secured financing.

Taxpayer has one model under which it does business, the Dealer Originated RTO Agreement, and a prospective second model, Proposed Taxpayer Finance Card RTO Agreement.

Dealer Originated RTO Agreement

Taxpayer enters into a contract (Merchant Agreement) with a Dealer to offer customers what Taxpayer describes as a financing lease. The latter agreement with customers is referred to as a Dealer Originated RTO Agreement (Customer Agreement). Taxpayer also describes the Customer Agreement as a “hybrid finance” arrangement. Taxpayer provided a sample Customer Agreement and Merchant Agreement, both of which are incorporated by reference herein.

In the Customer Agreement, Customers typically pay Dealer an upfront $39 origination fee. The Customer Agreement also shows the retail price and a sales tax amount on the purchase.

The Customer Agreement provides the following two options for payment for the merchandise and obtaining ownership.

a. 100 days Same-as-Cash. Most Customers initially intend to take advantage of this option. Slightly under one-half complete it.

b. Rent-to-Own. If the Customer does not avail itself of the Same-as-Cash option, the Customer Agreement defaults to a rent-to-own option, featuring individual renewal periods, after which the Customer automatically becomes the owner. The Customer may pay off the Customer Agreement and take unconditional ownership at any time by paying an amount equal to 65 percent of all future payments.

The Customer Agreement, although providing for bi-weekly payments over the course of a year, is actually divided into 60-day individual lease terms. See Customer Agreement. (“Your initial minimum lease term is 60 days from the Acquisition Date. This Agreement automatically renews for 60 days upon repayment of the preceding lease term.....”)

While the Customer has the option of terminating the Customer Agreement without taking ownership at the end of a lease term, the Customer would have to ship the item to the Taxpayer’s facility in CITY, Utah. As a practical matter, this never occurs. In such instances, the Customer and Taxpayer negotiate an acceptable payoff amount, or the Taxpayer charges off the balance. This occurs in nearly one-fourth of all agreements. Taxpayer does not re-rent items in situations wherein the customer desires to terminate the 12-month agreement.

The Customer Agreement contains a provision stating that the Customer is acquiring property as the Taxpayer’s agent. See Customer Agreement. (“Acquisition of Property as Agent; New Condition; Description. You are acquiring the Property as our agent. We own the Property unless and until you make the payments necessary to acquire ownership.”)

Taxpayer confirms that all Customer Agreements are “Rental-purchase agreements” as defined in Business and Commerce Code, Chapter 92 (“Rental-Purchase Agreements”), and further states that the agreement language “otherwise conforms in all material respects” to that chapter.

Taxpayer also states that it contacted the Office of the Consumer Credit Commissioner (OCCC), which, according to Taxpayer, “acknowledged that a person that meets the exception of (Finance Code, Section) 345.001(6)(C) is excluded from the regulatory and registration requirements of the OCCC and neither registers with the OCCC nor obtains an advance ruling from them.”

Taxpayer further states, “it appears that the Taxpayer’s Customer Agreements would likely meet the definition of Sec. 345.068, Bailment or Lease as Retail Installment Transaction, were it not for Section 345.001(6)(C) (“Retail Installment Sales”)......” Taxpayer, in effect, affirms that its transactions are not retail installment transactions.

The Representations and Warranties section of Taxpayer’s Merchant Agreement further states that neither party to that agreement will “mischaracterize the transactions (thereunder) as a credit-sale or a loan.”

Proposed Taxpayer Finance Card RTO Agreement

This model involves what Taxpayer refers to as the issuance of a limited-use “credit card” to customers. Customers’ use of the “card” is limited to Dealers “within the range of Taxpayer’s targeted product niches—e.g., tires, mattresses, and furniture.”

Dealers are unaware of the existence of the “rent-to-own” agreement between the Taxpayer and its customers. Taxpayer states it knows neither the actual amount of the sales tax purportedly financed nor what item was purchased by the Customer.

Taxpayer did not furnish a copy of the Proposed Taxpayer Finance Card RTO Agreement. Taxpayer, however, affirms that all terms of the Proposed Taxpayer Finance Card RTO Agreement are identical to the Dealer Originated RTO Agreement, except that the Customer directly applies online with the Taxpayer for the limited-use “card” under which items will be purchased. Taxpayer’s website ** indicates that the “card” is actually a number, administered by COMPANY, that Taxpayer transmits to customers’ cell phones after customers successfully apply on Taxpayer’s website. Dealers will enter the number to process sales for customers. After the sales are consummated, however, Taxpayer will email payment schedules directly to customers.

Taxpayer’s website also states that the Taxpayer Finance Card is not a credit card, noting that Taxpayer, instead, “provides rent-to-own financing.”

Questions, Rulings, and Analysis

Taxpayer describes its Dealer Originated RTO Agreements and its Proposed Taxpayer Finance Card RTO Agreements as financing leases and requests a ruling regarding the treatment of these agreements under the Texas sales and use tax. Taxpayer’s sales and use tax collection responsibilities and the taxability of charges associated with the agreements are determined based on whether the agreements are financing or operating leases under Rule 3.294 (Rental and Lease of Tangible Personal Property). Your question has, therefore, been restated in those terms.

You suggested in your email of Sept. 19, 2019, that the sales tax collection responsibility rests with the Dealer, and that, when the Customer Agreement is assigned, the “sales tax collection duty appears to end with the seller’s assignment notwithstanding Rule 3.294 for finance leases.” The response to this has been included as Question Three.

Your email dated Oct. 3, 2018, also requested a determination of the taxability of charges under an agreement when the item purchased is removed from this state. This request has been included as Question Four.

Our restatement of your questions is shown below, followed by our responses and analyses.

Question One: Is Taxpayer’s Dealer Originated RTO Agreement a financing lease?

Ruling One: No. Taxpayer’s Dealer Originated RTO Agreement is an operating lease. Rule 3.294(a)(4). The provisions of Section 151.007(c)(4) do not apply.

Analysis: Texas imposes a sales tax on each sale of a taxable item in this state. Section 151.051 (Sales Tax Imposed). The term taxable item includes tangible personal property and taxable services. Section 151.010 (Taxable Item). Tangible personal property is personal property that is perceptible to the senses in any manner. Section 151.009 (“Tangible Personal Property”).

The Comptroller has long found that “rent-to-own” contracts are operating, not financing, leases. See, e.g., STAR Accession Nos. 8510T0668A04 (Oct. 30, 1985); 9107L1119F07 (July 1, 1991); 8804L0879D01 (April 14, 1988); and 8808L0898B09 (Aug. 10, 1988).

Rule 3.294(a)(2) defines a lease or rental as “[a] transaction, by whatever name called, in which possession but not title to tangible personal property is transferred for a consideration.”

Rule 3.294(a)(1) defines a financing lease as follows:

(1) Financing lease--

(A) A written lease contract containing either of the following provisions or conditions at the inception of the contract:

(i) title to the property must be transferred to the lessee at the end of the lease; or

(ii) an option to purchase the property at a nominal price is available to the lessee at the end of the lease (a price is nominal which is, at the time the contract is executed, estimated to be less than 10% of the fair market value of the property at the time the option is to be exercised) ....”

Taxpayer acknowledges, and its Customer Agreement indicates, that its Customers may take title to the items it transfers into their possession. However, they are not required to do so. The Customer Agreement states clearly that the customer “has the right, but not the obligation, to acquire ownership of the Property.... ”

Additionally, the Customer Agreement provides for 26 payments covering the course of a year, divided into individual 60-day lease terms, each term constituting a renewal of the contract with no certain transfer of title to the items during any of the terms. The provision for individual 60-day leases is not indicative of a financing lease as defined in Rule 3.294(a)(1)(A)(ii). Rule 3.294(a)(1)(B) describes a presumptive financing lease.

(B) A written lease contract containing either of the following provisions or conditions at the inception of the contract will be presumed to be a financing lease:

(i) the lease term is equal to 75% or more of the estimated economic life of the property and the contract makes no provisions for the return of the property to the lessor. For used property, this section does not apply if the beginning of the lease term falls within the last 25% of the total estimated economic life of the lease property; or

(ii) the residual value of the leased property is less than 10% of the property’s fair market value at the inception of the lease and the contract makes no provisions for the return of the property to the lessor.

The items Taxpayer leases, however, do not qualify for either presumption: the estimated economic life provision or the property’s fair market value. All of the items have estimated economic lives longer than, and fair market values greater than, the thresholds in those provisions at the conclusion of the aggregated 60-day lease terms. Additionally, all the property leased is new−the residual value of the leased property is not less than 10% of the property’s fair market value at the inception of the lease.

In addition, although Taxpayer states that, as a practical matter, the property is never returned if the customer does not fulfill the requirements to take title, the contract specifically includes a provision for the return of the property. See the section entitled, Lease Term, Subsequent Terms, and Renewal (“ . . . unless you terminate and return the Property in the same condition, less reasonable wear and tear, at the end of any lease term.....”)

Taxpayer also acknowledges that the Customer Agreements are “rental-purchase agreements” under Chapter 92, Business and Commerce Code. Rental-purchase agreements are, however, excluded from the definition of “retail installment contracts” (e.g., conditional sale contracts) by Finance Code, Section 345.001(6)(C). Taxpayer further acknowledges it is not required to register with the OCCC.

Because Taxpayer does not enter into retail installment contracts (conditional sales agreements), as defined in Finance Code, Section 345.001(6), the agreements do not constitute financing leases as defined in Rule 3.294(a)(1).

In contrast, Rule 3.294(a)(4) defines an operating lease, in relevant part, as:

“A lease contract which gives the lessee use of the leased property for a certain period. For the purposes of the sales and use taxes, a written contract in the legal form of a lease will be treated as an operating lease unless it meets the definition of a financing lease.”

Taxpayer is transferring possession, but not title, of consumer goods to its customers. Over the course of a year, Taxpayer is entering into a succession of 60-day individual operating leases with its customers.

The customer is clearly not required to take title to the items rented, although that may happen either as a consequence of completion of the terms of the Customer Agreement or via a separate purchase arrangement in the event that the customer decides not to fulfill the terms to transfer title. Taxpayer states that as a practical matter, items are never returned to Taxpayer. Any negotiated transfer of title resulting from termination of the Customer Agreement would constitute a separate sale and would also be taxable.

As noted, Taxpayer’s Customer Agreements do not meet the definition of a financing lease. Furthermore, there are no interest or other financing charges associated with the agreements. The provisions of Section 151.007(c)(4) do not apply.

Section 151.007(c)(4) states the following:

(c) “Sales price” or “receipts” does not include any of the following if separately identified to the customer by such means as an invoice, billing, sales slip or ticket, or contract: . . .

(4) finance, carrying and service charges, or interest from credit extended on sales of taxable items under a conditional sales contract or other contract providing for the deferred payment of the purchase price;.....”

Separately stated interest payments on a financing lease are excluded from the sale price based on the provisions of Section 151.007(c)(4). However, Taxpayer is entering into operating, not financing, leases. Charges Taxpayer describes as “interest” payments are actually components of the sales price of the rented taxable item. See Section 151.007(a)(2) and Finance Code, Section 345.001(6)(C).

Taxpayer must collect and remit sales tax on the entire stream of payments received, including the $39 origination fee and any other charges associated with the sale. See Section 151.007(a)(2). Taxpayer must also clearly identify the sales tax collected. See Rule 3.286(d)(2)(B) (Seller’s and Purchaser’s Responsibilities).

There are two transactions taking place. One is the sale of the item by the Dealer to Taxpayer. The other is Taxpayer’s rental contract with the customer. Customers in this instance are acting as agents for the Taxpayer in purchasing the items. Taxpayer, then, subsequently rents the items to them (Customers) under separate agreements.

Taxpayer is purchasing items from a Dealer via an agency agreement provision stated in the Customer Agreement between Taxpayer and Customer that provides:

“Acquisition of Property as Agent: New Condition; You are acquiring the Property as our agent. We own the Property unless and until you make the payments necessary to acquire ownership. You agree to acquire from the Retailer only new goods ”

An agent is a person empowered to purchase items on behalf of a principal. The three elements of an agency relationship are: (1) the agent is acting for the principal; (2) both parties consent to the arrangement; and (3) the agent is under the control of the principal. See Comptroller’s Decision No. 47,797 (2008).

Additionally, an agent purchasing items on behalf of a principal is “standing in the shoes” of the principal and must pay or accrue tax as if the principal itself were personally making the purchase. STAR Accession No. 200703903L (Mar. 1, 2007) (“When an event planner acts as an agent for a customer in acquiring taxable items, the event planner may not issue (its own) resale certificate to a supplier in lieu of tax. The event planner should pay or accrue tax at the time of the purchase and then bill the client for the exact amount of the purchase, including the tax.”) Taxpayer has contractually authorized its customer, as its agent, to purchase the items. Unlike the taxpayer referenced in STAR Accession No. 200703903L, however, Taxpayer will be subsequently renting the items; therefore, Taxpayer may purchase the items tax free for resale from the Dealer.

Dealers are required to collect and remit Texas sales and use tax on the sale of a taxable item unless a purchaser provides a properly completed exemption or resale certificate. There are three acceptable methods to address these purchases in Taxpayer’s circumstance.

1) Taxpayer’s customers may represent to the Dealer that they are purchasing the items for resale on Taxpayer’s behalf under the agency agreement. See Rule 3.285 (“Resale Certificate; Sales for Resale”). The customer may issue Taxpayer’s resale certificate in Taxpayer’s name, signing the certificate and citing to the agency agreement. Taxpayer, then, collects from the customer and remits sales tax.

2) Taxpayer may issue blanket resale certificates to Dealers from whom it will only purchase items for resale subject to Customer Agreements. See Rule 3.285(c)(4). The resale certificates should indicate that the customers are acquiring the items as Taxpayer’s agents. Taxpayer, then, collects from the customer and remits sales tax.

3) Customers may, acting under the agency agreement, pay the Dealer’s price of the item, as well as the sales tax on that price, to the Dealers. Taxpayer may, then, when reporting sales tax after collecting it from customers, take a credit on its return for the sales tax already paid, remitting the additional tax collected on the future rental payments. This is done by reducing the amount reported on the Taxable Sales line to account for the tax already paid. Taxpayer must maintain records indicating that the sales were for resale.

Question Two: Is Taxpayer’s Customer Agreement (Proposed Taxpayer Finance Card RTO Agreement) a financing lease?

Ruling Two: No. Taxpayer’s Proposed Taxpayer Finance Card RTO Agreement is an operating lease.

Analysis: Taxpayer states that all terms of the Proposed Taxpayer Finance Card RTO Agreement are identical to the Dealer Originated RTO Agreement except that the transaction occurs online. Taxpayer’s Dealer Originated RTO Agreement indicates that the items will be purchased by customers acting as agents for Taxpayer. Therefore, the sales tax treatment of transactions under the Proposed Taxpayer Finance Card RTO Agreement is identical to that under the Dealer Originated RTO Agreement.

The Proposed Taxpayer Finance Card RTO Agreement is an operating lease and not a financing lease. Because the agreement is an operating lease, the exclusions from sales price for finance, carrying and service charges, or interest provided by Section 151.007(c)(4) do not apply. Resale certificates may be provided as described above. See the response to Question One.

Taxpayer is responsible for knowing the sales price on the transaction, as well as collecting and remitting tax on the subsequent rental payments. This will include the proper collection and remittance of local sales and use taxes. See, for example, Section 321.201(a) (Computation of Sales Taxes).

Question Three: Is the Dealer, and not Taxpayer, the seller of the item and responsible for the collection of tax?

Ruling Three: Taxpayer is a seller offering operating leases and is responsible for collection of tax.

Analysis: Subsequent to Taxpayer’s initial inquiry, Taxpayer took the position that the sales tax responsibility is with the Dealer, and that, when the Customer Agreement is assigned, the sales tax collection duty appears to end with the seller’s assignment notwithstanding Rule 3.294. Taxpayer believes that it cannot be a seller under Rule 3.286, because Taxpayer purportedly never offers or touches the inventory and is unaware of what the customer has purchased “nor (has) any intent to repossess upon default.” Taxpayer suggests that it is “an assignee of an instrument originated by the seller that more often than not results in 100-days-same-as-cash.”

Taxpayer’s Customer Agreements (both current and proposed) clearly state that the customer is acting as Taxpayer’s agent in making purchases for resale from the Dealer. See Ruling One. Taxpayer subsequently furnishes the item to the customer for consideration and is, therefore, a seller under Section 151.008 (“Seller” or “Retailer”), with a tax collection responsibility under Section 151.052 (Collection by Retailer).

Question Four: What are the ramifications of an out-of-state resident entering into a Customer Agreement in Texas, taking delivery in Texas, and taking the property out of state?

Ruling Four: The transaction is taxable. Texas tax is due through the first 60-day term of the rental. Texas tax is not due after the out-of-state renewal of the lease term at the end of the first 60 days, assuming the property has been removed from and does not re-enter Texas. Rule 3.294(f)(1)(A).

Analysis: Rule 3.294(f)(1)(A) states the following:

(f) Imposition of taxes; time for filing; credits.

(1) Leases subject to sales tax.

(A) An operating lease executed while the property is within the state is subject to sales tax. Tax will be due on the total lease amount for the entire term of the lease regardless of where the property is used if the lessee takes delivery in the state. Any renewal of the contract, extensions, or options exercised while the tangible personal property is outside the state will not be subject to Texas tax unless the property reenters the state.

Texas tax is due through the first term of the contract. If the property remains out-of- state, the renewal at that point is not subject to Texas tax.

Comptroller’s Decisions and STAR documents cited can be found on the Comptroller’s State Tax Automated Research (STAR) system. The Texas Tax Code, Texas Administrative Code, and the STAR system are accessible at www.comptroller.texas.gov/taxes/.

If you have questions about this private letter ruling, please email us through our website at https://comptroller.texas.gov/web-forms/tax-help/ and reference Private Letter Ruling No. PLR20190211103116.

Sincerely,

Tax Policy Division – Indirect Taxes

Texas Comptroller of Public Accounts

ENDNOTES:

1. Unless otherwise indicated, all references to “Section” are to the Texas Tax Code, and all references to “Rule” are to Title 34 of the Texas Administrative Code.