Ezel / Tax Rulings / TX
TX 8805L0903C03 Sales and/or Use Tax (State,Local,MTA) 1988-05-27

Did a pre-July 22, 1987 lease qualify for Texas's prior-contract exemption when the customer bore later sales-tax increases?

Short answer: No. Texas denied the prior-contract exemption because the master lease made the customer responsible for sales-tax changes or increases. That clause protected the lessor from a rate change, meaning its price was not fixed; any lease with that language failed Rule 3.319's exemption test.

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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 an official Texas Comptroller of Public Accounts letter published on the State Tax Automated Research (STAR) system. Letters on STAR can be the basis of a detrimental reliance claim only for the taxpayer to whom the letter was directly issued (see 34 Tex. Admin. Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded. Taxpayer-identifying details are redacted. This summary is informational only and is not legal or tax advice. Consult a licensed Texas tax professional about your specific situation.
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

Texas denied a prior-contract exemption for a master lease entered before July 22, 1987. The lease shifted sales-tax changes or increases to the customer. Rule 3.319 section (C)(4) disqualified that arrangement because the lessor was protected from a rate change and its price was not truly fixed.

What this means for you

A contract's tax-adjustment language can defeat grandfathering even when the agreement predates the relevant change. Under this letter, every lease using the same clause failed the prior-contract exemption.

Common questions

Did the lease qualify? No. Why? The customer bore tax-rate increases. What mattered? The lessor's price could change with the tax rate, so the lessor was not harmed by the change.

Citations and references

  • Rule 3.319 section (C)(4)

Source

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

May 27, 1988

Dear ***:

Thank you for your letter dated May 6, 1988 concerning a prior
contract exemption for lease agreements entered into prior to
July 22, 1987.

The master lease agreement that was submitted does not qualify
for a prior contract exemption due to the provision for handling
sales tax between lessor and lessee in Section 2. Rule 3.319
section (C)(4) disqualifies those contracts which specifically
state that the customer is responsible for any changes or increases
in the tax rate. In these cases, the lessor is not affected or
harmed by a change in the tax rate. He has allowed for changes
in the tax rate by shifting the burden to his customer. His price
is not fixed; it may change depending on the tax rate. Therefore,
any of your lease agreements that have this language will not
qualify for a prior contract exemption. Enclosed is a copy of Rule
3.319, Prior Contracts.

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

Please feel free to contact me if you have any additional questions.
You may write me, call toll-free 1-800-531-5441 from anywhere in the
United States or phone 512/463-4685.

Sincerely,
Julie Pesl
Tax Policy Division

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