How were hydrostatic testing, repair, fabrication, leasing, and delivery of compressed-gas semi-trailers taxed?

Plain-English summary

The business disassembled compressed-gas semi-trailers for required hydrostatic testing, tested cylinders, sometimes sandblasted or cleaned them, made repairs, reassembled the trailers, and painted them. The Comptroller treated the described trailers as motor vehicles, so those functions were not taxable except to the extent work constituted remodeling.

When fabricating trailers for sale, the business could give suppliers resale certificates for components. Motor-vehicle tax was due when a sold trailer was registered.

Giving a customer exclusive use of a manufactured trailer for consideration was a rental. The lessor collected motor-vehicle gross-rental-receipts tax unless the lessee supplied an interstate motor-carrier identification number. Fabrication components for leased trailers could also be bought with resale certificates.

Transportation after a motor-vehicle sale was not taxable. Delivery of a vehicle not "rented in Texas" was likewise not taxable under the letter's reference to Rule 3.78.

Common questions

Was hydrostatic testing taxable? Not for the described motor-vehicle trailers, except the response reserved remodeling. When was tax due on a fabricated trailer sold to a customer? At registration. Did every lease owe gross-rental tax? The letter identified an exception when the lessee provided an interstate motor-carrier ID.

Citations and references

• Texas Sales Tax Rule 3.78, referenced for delivery of a vehicle not rented in Texas.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8501L0642C06

Original ruling text

January 30, 1985

Dear ***:

Thank you for your recent letter which I have restated below:

Because of conflicting opinions from your field representatives, we
would like to request a written verification of our tax collection
liabilities. The following is a description of our business.

Hydrostatic test of Compressed Gas Semi-Trailers. D.O.T. requires
quinquennial retest of all government and private owned tube trailers.
Trailer is disassembled. Cylinders are tested individually. Sandblasting
is common, but not necessary. At this time internal cleaning may or may
not be required. Also while trailer is disassembled, some repair made to
the trailer. Trailer is then reassembled and painted.

Response: Effective October 2, labor to repair, remodel, restore or maintain
tangible personal property became taxable. Except for remodeling, the above
functions performed on a motor vehicle are not taxable.

The semi-trailers you described in our phone conversation are motor vehicles.
Therefore, the functions you describe are not taxable.

(Compressed Gas Semi-Trailers are fabricated.)

Response: You may give a resale certificate to your supplier in lieu of tax.
The motor vehicle tax would be due at the time the vehicle is registered if the
trailer is to be sold.

(Compressed Gas Semi-Trailers are leased to customers.)

Response: An agreement by the original manufacturer of a motor vehicle to give
exclusive use of the motor vehicle to another for consideration is a rental. You
would collect the motor vehicle gross rental receipts tax unless the lessee
provides you with his interstate motor carrier I.D. number. You may give a resale
certificate to your supplier when purchasing components to manufacture the trailer.

Also, please clarify transportation charges to out of state destinations.

Response: Transportation (charges which occur after the sale of a motor vehicle are
not subject to tax. Any charges for delivery of a vehicle which is not "rented in Texas"
is not subject to tax (see enclosed Rule 3.78).

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

If we can be of further help, please call us at 1-800-252-5555 toll free
from anywhere in Texas. You may write us at the Tax Administration Division.

Sincerely,

Tax Policy Section
Tax Administration Division