Ezel / Tax Rulings / TX
TX 8802L0867C13 Sales and/or Use Tax (State,Local,MTA) 1988-02-05

Was a demurrage fee based on welding cylinders still in the customer's possession at month-end subject to Texas sales tax?

Short answer: No. Texas treated the described demurrage charge as a nontaxable penalty for returning a returnable container after the specified date. No fee was charged when the cylinder was returned before month-end.

Apply this to your situation

This page answers the general question as of 1988. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1988
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 a taxpayer-specific February 1988 Texas Comptroller letter. It says the opinion may change if the facts differ and cites no statute or rule. Demurrage, rental, returnable-container, late-return, and penalty rules may have changed; a charge structured as continuing rent may differ from the late-return penalty described here. STAR documents may no longer represent current policy even when not marked superseded. Taxpayer-identifying details are redacted. This summary is informational only and is not legal or tax advice.
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

The welding-supply business charged a customer based on the number of cylinders still in the customer's possession at the end of the month. A cylinder returned before month-end generated no fee.

The Comptroller treated that charge as a nontaxable demurrage penalty for returning a returnable container after a specified date.

What this means for you

The historical result rested on classifying the charge as a late-return penalty rather than a taxable rental charge. The billing terms and when the fee arises matter.

Common questions

Was the described demurrage taxable? No.

Was a fee charged for a cylinder returned before month-end? No.

Did the letter decide all cylinder-rental charges? No. It addressed the described demurrage fee.

Citations and references

The letter cites no numbered statute or rule.

Source

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TEXAS 78774

February 5, 1988

Dear **:

On behalf of Mr. Bullock, I hope you'll accept my apology for the delay
in answering your question involving changes in the sales tax law. This
isn't the way we normally do business.

Our people were, and still are, swamped by a deluge of inquiries as they
attempted to interpret provisions of the new law and draft rules which
would not adversely impact businesses. In many instances, an answer to a
question just wasn't available when the question arrived.

In your letter of November 11, 1987, you requested information regarding
the taxability of demurrage charges.

You explained that you were in the welding supply business. Your
customer is billed a demurrage fee for the cylinder at the end of the
month according to the number of cylinders he has in his possession at
the time. If the cylinder is turned in before the end of the month, no
demurrage fee is charged.

A demurrage charge or penalty for returning your returnable containers
after a specified date is not taxable.

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 our
toll-free number 1-800-531-5441. The regular number is 512/463-4600.
You may write me at the Tax Policy Division.

Sincerely,
Julie Pesl
Tax Policy Division

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