Could a company use Texas's aggregate use-tax reporting method retroactively from September 1, 1985, and how were existing assets and a capitalized repair treated?

Plain-English summary

The company asked to use the aggregate method of reporting use tax effective September 1, 1985. The Comptroller denied that retroactive date because a rule amendment could not operate retroactively without a law change. The company could use the method beginning November 1, 1986.

The letter then gave three asset examples and one repair example:

• A tax-free asset placed in service on an exempt project in September 1984 cost $16,000, had an eight-year useful life, and had a $12,000 undepreciated value on November 1, 1986. That balance had to be reported for sales tax over four years.
• Another tax-free September 1984 asset cost $10,000, had a five-year useful life, and had a $6,000 undepreciated balance on November 1, 1986. That balance could be reported over the next four years.
• An asset bought in August 1985 for a taxable job cost $48,000, with state and local sales tax paid to the vendor. Credit for later exempt-job use would be claimed on its $36,000 undepreciated balance over four years, while MTA tax would be reported for taxable-job use.
• A $24,000 major repair incurred December 1, 1986 and treated as a separate sales-tax item would be reported over four years.

What this means for you

The letter did not allow an administrative rule change to create a retroactive reporting election. Once the permitted effective date arrived, the aggregate method applied to remaining asset values and separately capitalized repair costs through the stated reporting periods.

Common questions

Could the company start the aggregate method on September 1, 1985? No.

What effective date did the Comptroller allow? November 1, 1986.

How were the two tax-free assets handled? Their $12,000 and $6,000 undepreciated balances were reportable over four years.

How was the asset with tax already paid treated? The company could claim exempt-use credit on the $36,000 undepreciated balance over four years and report MTA tax for taxable use.

How was the $24,000 repair handled? As a separate sales-tax item reported over four years.

Citations and references

• The letter cites no rule or statute number.
• It states that rule amendments cannot have retroactive effect without a law change and, even then, only from enactment.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8704L0810G10

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller April 29, 1987

Dear ***:

Thank you for your letter requesting permission to use the aggregate
method
of reporting use tax effective September 1, 1985.

We have considered your request and after careful deliberation it must be
denied. Amendments to a rule cannot have a retroactive effect on
taxpayers
without a law change. And even then only to the date of enactment.
Therefore, the aggregate method may be used effective November 1, 1986.

The following represent examples to aide you in this implementation.

Item A: Purchased tax-free for use on an exempt project and placed into
service during September 1984 with an original cost of $16000.00 and a
useful
life of 8 years. The undepreciated value at November 1, 1986 is
$12000.00.
This balance must be reported for sales tax under the aggregate method
over a
four year period.

Item B: Also purchased tax-free and placed into service during September
1984. Cost was $10000 and the useful life was 5 years. The undepreciated
value at November 1, 1986 is $6000.00. This balance may be reported over
the
next four years.

Item C: Purchased in August 1985 and placed into service on a taxable
job.
State and local sales tax were paid to the vendor on the purchase price
of
$48000.00 and the useful life was four years. Credit for subsequent use
on
exempt jobs will be claimed on the undepreciated balance of $36000.00
over
the next four years. MTA tax will be reported for use on taxable jobs.

On December 1, 1986 a major repair expense was incurred. The Company has
decided to treat this cost as a separate item for sales tax. Tax on the
$24000.00 cost will be reported over the next four years.

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 me at
1-800-252-5555 toll free from anywhere in Texas. The regular number is
512/463-4600. You may write me at the Tax Administration Division.

Sincerely,
F. Wayne McDonald
Tax Policy Section
Tax Administration Division