Ezel / Tax Rulings / TX
TX 8806L0902B13 Sales and/or Use Tax (State,Local,MTA) 1988-06-01

Is return freight charged by an equipment lessor at the end of a rental agreement taxable in Texas?

Short answer: Yes. Texas treated all transportation charges billed by an equipment lessor as taxable, including separately stated return freight. Tax applied whether the lessor hired a commercial hauler and rebilled the customer or the customer arranged freight collect and the lessor passed the charge back.

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 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 Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded.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

An equipment-rental company asked about freight charged when leased equipment was returned. Texas said all transportation billed by the lessor was taxable, including separately stated transportation from the lessee back to the lessor.

Tax applied in both examples. It applied when the lessor sent a commercial hauler and rebilled the customer, and it also applied when the customer arranged freight collect, the equipment returned to the lessor's yard, and the lessor billed the freight back to the customer. Continuing the rental charge until return did not change the freight result.

What this means for you

Equipment-rental companies

Under this letter, return freight is part of the taxable rental transaction when the lessor bills it. Separately stating the charge or using a third-party carrier did not make it nontaxable.

Lessees

Expect tax on return-transportation charges billed by the lessor, including a freight-collect amount passed through after the equipment is returned.

Common questions

Q: Is separately stated return freight taxable?
A: Yes. The letter expressly treats it as taxable.

Q: What if a commercial hauler performs the return trip?
A: The lessor's rebilled hauling charge is still taxable under the letter.

Q: What if the customer arranges freight collect?
A: Tax still applies when the lessor pays and then bills the customer.

Q: Can I rely on this 1988 letter today?
A: Treat it as historical guidance. It was based on the stated rental facts and may not reflect current policy.

Citations and references

  • Rule 3.294, enclosed with the original letter

Source

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TEXAS 78774

June 1, 1988

Dear ***:

I have received your letter concerning tax on the charge for return
freight at the conclusion of a rental agreement.

As you stated in your letter, you are an equipment rental company. On
equipment rentals on leases, all transportation billed by the lessor are
subject to tax. Separately stated charges by the lessor for the trans-
portation of the leased property from the lessee back to the lessor are
taxable.

In the example you cited where you sent a commercial hauler to pick up
equipment at the end of a lease and bill the customer for these hauling
charges, tax will be due.

In the second example you cited, rental charges continued until the
equipment was received back in your yard. Your customer arranged for a
commercial hauler to return the equipment with freight collect; you then
billed the customer for these freight charges.

Again, tax is due on these freight charges as this is considered
transportation back to the lessor, even thought rental charges may have
run through the time that the equipment was received back in your yard.

I am enclosing a copy of Rule 3.294 for your reference.

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

If we can be of further assistance, please write to us or call toll free
from anywhere in Texas at 1-800-252-5555. Our regular number is
512/463-4600.

Sincerely,
Adina Whittemore
Tax Policy Division

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