When a supplier's on-site technicians only power equipment on/off and do maintenance — but the customer's own staff actually run it — is that a taxable equipment rental or a nontaxable operator-provided service?

Plain-English summary

A company that evaluates trade-in wireless devices for telecom providers leases "triage" testing equipment from a supplier. The supplier's technicians come on-site to power the equipment up each shift, keep it running, do maintenance and repairs, and power it down at day's end — but it's the company's own employees who actually load devices and run tests all day. The company asked whether the supplier's charges (an equipment fee plus a per-device fee) are a taxable equipment rental, or a nontaxable service (since a "furnishing of equipment with an operator" is normally treated as a nontaxable service under Texas rules).

The Comptroller ruled this is a taxable rental, not a service. The legal test is who has "operational control" — actively using, guiding, or running the equipment. The supplier's technicians only start/stop the equipment and maintain it; per Rule 3.294(a)(3), a person who provides "maintenance, repair, or supervision only" isn't an "operator." Because the company's own staff continually load, run, and control the equipment throughout each shift, the company — not the supplier — has operational control, which makes this a rental of tangible personal property rather than an operator-provided service.

What this means for you

Businesses leasing specialized equipment with vendor on-site support

The presence of a vendor's technician on-site doesn't automatically make a transaction a nontaxable service. What matters is who's actually driving, guiding, or operating the equipment during use. If the vendor's staff limit themselves to startup/shutdown, maintenance, and monitoring for malfunctions — while your own employees run the equipment — expect the charge to be taxed as equipment rental.

Equipment lessors/suppliers structuring service agreements

If you want a "furnished with operator" service treatment (generally nontaxable under Rule 3.294(c)(2) unless the service itself is separately taxable), your technicians need to be the ones actively operating the equipment — actively guiding, driving, piloting, or steering it — not merely keeping it powered on and maintained while the customer's staff do the actual work.

Accountants and tax professionals

The key authority is 34 Tex. Admin. Code § 3.294(a)(3)'s definition of "operator" and the "operational control" test from Combs v. Chevron, Inc., 319 S.W.3d 836 (Tex. App.—Austin 2010, pet. denied), applied here alongside Comptroller's Decision Nos. 40,812 (2003) and 116,506 (2020). Rule 3.294(c)(1) taxes rentals without an operator; (c)(2) presumes a service (nontaxable, unless independently taxable) when equipment comes with a genuine operator under a single charge.

Common questions

Q: Does having a technician on-site at all make this a nontaxable service?
A: No. The technician's role has to rise to actual operational control — actively guiding or running the equipment. Startup, shutdown, monitoring for malfunctions, and maintenance don't count.

Q: What if the supplier charged a separate fee for the technicians?
A: The ruling notes the supplier here did NOT charge a separate technician fee (it was bundled into the equipment/per-device fee). A separately stated, genuinely operator-driven service charge could be analyzed differently — but the operational-control test would still control.

Q: Can another business rely on this ruling?
A: No. It's binding on the Comptroller only for the taxpayer and facts in the request. If your vendor's staff actually operate the equipment (not just start/stop/maintain it), your transaction could be treated as a nontaxable operator-provided service instead.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.051 (Sales Tax Imposed); § 151.010 (Taxable Item); § 151.009 (Tangible Personal Property)
• Tex. Tax Code § 151.005 (lease/rental as a "sale"); § 151.007 (Sales Price or Receipts)
• 34 Tex. Admin. Code § 3.294(a)(2) ("lease or rental" defined); (a)(3) ("operator" defined); (b) (taxable charges); (c)(1)-(2) (equipment with/without operator)

Cited prior guidance:

• Combs v. Chevron, Inc., 319 S.W.3d 836, 840-41 (Tex. App.—Austin 2010, pet. denied) — operational control standard
• Comptroller's Decision Nos. 40,812 (2003) and 116,506 (2020)
• STAR Accession No. 202312010M — continuous operation standard

Source

• Landing page (STAR search): https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/202506016L

Original ruling text

June 17, 2025

RE: Private Letter Ruling No. 20240904075737

Dear **:

We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters. [ENDNOTE 1]1 We are responding to your request dated Aug. 29, 2024, along with supplemental information submitted on Nov. 16, 2024, and Jan. 10, 2025. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

** (Taxpayer) requested guidance on whether charges for the use of equipment to triage wireless devices are taxable as a rental of equipment.

Facts Presented

Taxpayer provides services to wireless telecommunications providers to evaluate and determine the condition of exchanged or trade-in wireless devices. Taxpayer receives devices from telecommunication providers and determines if a device is new, damaged beyond repair, defective, or eligible for recycling. Based on Taxpayer’s determination a device may be routed to a third-party repair and refurbishment provider, customer fulfillment center, disposal vendor, or auction company.

Taxpayer does not own the equipment used to provide its services. Taxpayer entered into a lease agreement with a supplier that grants Taxpayer the right to use the necessary equipment, technicians, and software. The agreement provides that the equipment will be installed at Taxpayer’s location. In addition, the lease agreement states that the supplier retains ownership of the equipment and requires the supplier to maintain the equipment in good working order.

The equipment is referred to as triage equipment. It is designed to test and assess the condition of a device. The equipment cleans devices in preparation for testing, determines the cosmetic grade of devices by capturing images, tests the functionality of device components, then returns the device to out-of-the-box state, and determines if the device is eligible for in-warranty or out-of-warranty repair and whether the device is eligible for repair and refurbishment.

The supplier provides on-site technicians that transition the equipment from standby mode to production mode at the beginning of each shift. They ensure that the equipment is operational before instructing Taxpayer employees to load devices into equipment for testing. Technicians monitor the equipment to detect defective devices or malfunctions causing devices to be ejected from the equipment. The technicians also deactivate the equipment at the end of the day.

The supplier charges Taxpayer a fee for the equipment and a per-device fee for each device tested. The supplier does not charge a separate fee for its technicians.

Question, Ruling, and Analysis

Our restatement of your question is shown below, followed by our responses and analysis.

Question: Are the supplier’s charges for Taxpayer’s use of the equipment and the per- device fee subject to Texas sales and use tax?

Ruling: The supplier’s charges to Taxpayer for the equipment and the per-device fee are subject to sales and use tax as the rental of tangible personal property.

Analysis: Section 151.051 (Sales Tax Imposed) imposes tax on each sale of a taxable item in this state. Section 151.010 (Taxable Item) states that a “taxable item” means tangible personal property and taxable services. Tangible personal property includes personal property that can be seen, weighed, measured, felt, or touched or that is perceptible to the senses in any other manner. Section 151.009 (Tangible Personal Property).

Section 151.005 (Sale or Purchase), in part, defines a “sale” as the lease or rental of tangible personal property for consideration. The sales price of an item includes the total amount for which the item is sold, and includes the charge for a service, the labor employed, or other expenses that are a part of the sale. Section 151.007 (Sales Price or Receipts).

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.”

A key element of ‘possession’ is ‘operational control’ over the tangible personal property. A lessee must exercise operational control of the leased property to take possession thereof. Operational control means “using, controlling, or operating the tangible personal property.” Combs v. Chevron, Inc., 319 S.W.3d 836, 840—41 (Tex. App -Austin 2010, pet. denied). See also Comptroller Decision Nos. 40,812 (2003) and 116,506 (2020).

Rule 3.294(b) provides that tax must be collected from the lessee on all charges contained in the lease unless the charge is separately stated and is nontaxable as provided by Rule 3.294.

Rule 3.294(c)(1) provides that the receipts from the lease of tangible personal property without an operator are taxable. Alternatively, Rule 3.294(c)(2) provides that the furnishing of tangible personal property with an operator under a single charge is presumed to be the performance of a service and tax is not charged to the customer unless the service is taxable under Tax Code, Chapter 151.

Rule 3.294(a)(3) defines an operator as a person who actively guides, drives, pilots, or steers tangible personal property. A person who provides maintenance, repair, or supervision only is not an operator.

Supplier’s technicians are onsite to activate and deactivate the equipment, provide preventative maintenance and repairs as needed, and monitor the equipment. However, the technicians are not exercising operational control of the equipment through these activities. The technicians are not responsible for controlling the equipment throughout the day. Merely powering up and shutting down the equipment does not rise to level of exercising operational control. The supplier technicians are not actively operating the equipment as described in Rule 3.294(a)(3). They are not continuously regulating or controlling the operation of the equipment as described in STAR Accession No. 202312010M. The charges for the use of the equipment are therefore not charges for a service under Rule 3.294(c)(2).

Instead, Taxpayer continually uses, controls, and operates the equipment to test and assess the condition of wireless devices. The supplier’s technicians are not involved in this interaction. Taxpayer is exercising operational control over and has taken possession of the equipment. Therefore, the lease agreement is a taxable rental of the equipment. Rule 3.294(a)(2) and (c)(1). Sales tax is due on the total sales price of the charges for the equipment and per device fee. Section 151.007(a)(1-2) and Rule 3.294(b).

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. PLR20240904075737.

Sincerely,

Tax Policy Division – Indirect Taxes

Texas Comptroller of Public Accounts

ENDNOTE

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