Ezel / Tax Rulings / TX
TX 8604L0726A01 Sales and/or Use Tax (State,Local,MTA) 1986-04-29

Did fixed-term leases signed before October 2, 1984 qualify for the historical prior-contract exemption and protection from later local tax increases?

Short answer: Yes while continuously in force, but the general exemption expired September 30, 1987. A qualifying contract also received three years of protection from a later local-option rate increase.

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This page answers the general question as of 1986. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1986
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is an official Texas Comptroller letter published on STAR. It describes a historical prior-contract exemption that expressly expired September 30, 1987 and three-year protection from certain local-option rate increases; it is not a current lease exemption. Letters on STAR apply only to the addressed taxpayer's facts and may no longer represent current policy. Identifying details are redacted. This summary is informational only and is not legal or tax advice. Consult a licensed Texas tax professional.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page) is the authoritative source for any reliance.

Plain-English summary

Fixed-term lease contracts entered before October 2, 1984 qualified for the prior-contract exemption while they remained continuously in force.

The general prior-contract exemption expired on September 30, 1987. The letter also said a local authority could raise its sales-tax rate in quarter-point increments up to one percent, and qualifying contracts received exemption from such an increase for three years from the increase date.

Common questions

Which leases qualified? Fixed-term leases entered before October 2, 1984 and continuously in force.

When did the general exemption expire? September 30, 1987.

How long did protection from a local rate increase last? Three years from the increase date.

Source

Original ruling text

April 29, 1986

Dear **:

Thank you for your recent letter and attachments.

Fixed term lease contracts which were entered into prior to October 2,
1984 and remain continuously in force qualify for the prior contract
exemption. The prior contract exemption provision in the statute expires
on September 30, 1987.

There is a statutory provision allowing an authority to hold a local
option election to raise their sales tax rate in increments of one quarter
of one percent, not to exceed a total of one percent. Contracts, as
mentioned above, would qualify for exemption from this tax increase for
three years from the date of the tax increase.

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

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