Were materials incorporated into an eight-ton-or-larger paddlewheel charter boat and restaurant exempt?

Plain-English summary

The described paddlewheel boat was to be used exclusively in commercial activity as a charter boat and restaurant. Section 151.329 exempted materials, equipment, and machinery that became component parts of a ship or vessel of at least eight tons displacement when used exclusively and directly in a commercial enterprise.

On those facts, materials used to build the boat were exempt. The same answer applied to motors, light fixtures, kitchen equipment, and other items attached or bolted to the boat.

The letter warned that personal use would jeopardize the exclusive-commercial-use treatment: tax would be due on the fair-market rental value when personal use occurred.

Common questions

Did the exemption cover attached kitchen equipment? Yes; the letter gave it the same treatment as other component materials. Was any commercial boat automatically exempt? The quoted provision required a vessel of eight or more tons displacement and qualifying commercial use. What happened upon personal use? The letter said tax was due on fair-market rental value.

Citations and references

• Texas Sales Tax Law § 151.329, as quoted in the reproduced letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8504L0640E07

Original ruling text

April 24, 1985

Dear ***:

Thank you for your letter of April 12, 1985, concerning the taxability of
a paddlewheel boat used exclusively for commercial use as a charter boat and
restaurant.

Your questions and the answers follow:

1. Given the above facts, are the materials used in building this boat exempt
   from sales and use tax

Yes, Section 151.329 of the Sales -Tax Law states, "The following items are
exempted from the taxes imposed by this chapter:

(1) Materials, equipment and machinery that enter into and become component
parts of a ship or vessel that is of eight or more tons displacement and is:

(A) used exclusively and directly in a commercial enterprise, including commercial
fishing; or

(B) used commerciality as a vessel for pleasure fishing by individuals as paying
passengers on the vessel.

2. If the boat is exempt, are there any factors which cold jeopardize the exemption?

In the event a personal use is made of the boat, tax is due on the fair market
rental value.

3. Are all materials which are part of the boat exempt, such as motors, light
   fixtures, kitchen equipment and other items that are attached or bolted to the boat?

Same as #1.

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

If you have any questions or need more information, 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