Was used drilling equipment bought at a Texas auction exempt because its new owner immediately moved it to Mississippi for exclusive use there?

Plain-English summary

A Mississippi drilling company bought used oilfield equipment through a Houston auction. The auction company did not take title, and the buyer immediately moved the equipment to its Mississippi yard for its own use because it did not operate in Texas.

The Comptroller nevertheless denied the claimed exemption and refund. The letter quotes an exemption for drilling equipment built for exclusive use outside Texas and removed from the state upon completion. Because the equipment had apparently already been used in Texas by a prior owner, it was not built for exclusive out-of-state use.

The auctioneer therefore correctly charged tax, and the Comptroller found no other exemption for the stated facts.

What this means for you

The new buyer's exclusive plan to use equipment outside Texas did not erase the equipment's earlier Texas use. For this exemption, the letter focused on whether the equipment itself was built for exclusive use outside the state, not just on the purchasing company's intended destination.

Common questions

Did moving the equipment directly to Mississippi make the auction purchase exempt? No.

Why did the exemption fail? The equipment had apparently been used in Texas by a prior owner, so the Comptroller said it was not built for exclusive use outside Texas.

Did it matter that the auction company never took title? That fact was stated in the request, but the ruling's reason for denial was the equipment's prior Texas use.

Was the buyer entitled to a refund from the auctioneer? No. The letter says the auctioneer correctly charged tax and no refund was warranted.

Citations and references

• The letter introduces and quotes “Section 151.334” subsection (b), covering drilling equipment built for exclusive out-of-state use and removed immediately upon completion.
• The conclusion instead refers to “Sec. 151.324 (b).” The source does not explain the differing section numbers.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8706L0819E05

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller June 1, 1987

Dear ***:

Thank you for your recent letter which is restated with response below.

We are an oilwell drilling company headquartered in the state of
Mississippi.

Recently we purchased oilfield equipment from an auction company at a
Houston, Texas auction.

The facts pertinent to the sale are:

1. The equipment was used.
2. The equipment was owned by another oilfield company.
   The auction company did not take title to the equipment.
3. The equipment was not purchased for use in Texas.We do not
   operate in that state. All equipment was moved to our **,
   MS yard for our own use.

In view of these facts, we believe we are entitled to have the
Texas sales tax charged refunded by the auction company. Please
advise me of the appropriate procedures to follow in this matter.

Response: Section 151.334 deals with equipment purchased in Texas to
be used for mineral exploration or production outside Texas. The
pertinent paragraph states:

(b) "Drilling equipment that is used for the exploration for or
production of oil, gas, sulphur, or other minerals, that is built
for exclusive use outside this state, and that is, on completion,
removed forthwith from this state is exempted from the taxes im-
posed by this chapter".

Because the equipment was apparently used in Texas, even though by a
prior owner, it was not built for exclusive use outside Texas and is not
exempt under Sec. 151.324 (b) of our statute. There is no other basis
for exemption in your fact situation.

The auctioneer was correct in charging tax and no refund is warranted.

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,
Al Van Allen
Tax Policy Section
Tax Administration Division