How did Texas tax a leased tractor-trailer containing MRI equipment when the equipment was attached or separately purchased?

Plain-English summary

A tractor-trailer containing magnetic-resonance-imaging equipment remained a motor vehicle regardless of the accessories attached to it or the medical function it served. The Comptroller's internal response cited Rule 3.88(a).

The tax treatment of the equipment then depended on how it was acquired:

• If the equipment was attached when the lessor purchased the trailer, the tractor, trailer, and accessories were subject to motor vehicle tax. Billing the equipment separately did not change the answer.
• If the lessor purchased the equipment separately and paid tax at purchase, no tax was due on the equipment lease payments under the cited rule.
• If the lessor billed one lump sum for vehicle and equipment, no tax was due when the lessor had paid tax on the equipment and the lease lasted more than 180 days.

The response did not answer the attached auditor's questions about later movement outside Texas, equipment first used outside Texas, the one-year use-tax provision, untaxed out-of-state purchases, or mixed Texas/out-of-state hospital use.

STAR's first subject label says accessories could be purchased under a resale certificate. The response text never mentions a resale certificate and therefore does not verify that proposition.

What this means for you

Mobile medical and specialized vehicles

Under the historical rule applied here, installing specialized medical equipment did not stop a tractor-trailer from being a motor vehicle.

Lessors billing vehicle and equipment separately

Invoice separation did not override the equipment's acquisition history. Equipment already attached when the trailer was bought stayed within the motor vehicle tax treatment described by the response.

Equipment bought separately

The response tied relief on lease payments to tax having been paid when the separate equipment was purchased.

Unanswered fact patterns

Do not extend this document to interstate moves, one-year prior use, untaxed equipment, or multistate service operations. Those questions appear only in the auditor's request, without Comptroller answers.

Common questions

Q: Did the MRI function make the unit movable specialized equipment instead of a motor vehicle?
A: No. The response treated the tractor-trailer as a motor vehicle.

Q: Did separate equipment billing avoid tax when the equipment was attached at purchase?
A: No.

Q: What if the lessor bought the equipment separately and paid tax?
A: The response said no tax was due on the equipment lease payments.

Q: What did the response say about a lump-sum charge?
A: No tax was due if tax had been paid on the equipment and the lease exceeded 180 days.

Q: Did the document approve resale-certificate purchasing?
A: The STAR subject says so, but the body does not. This page therefore does not report that as a holding.

Citations and references

• Texas Comptroller Rule 3.88(a) — motor-vehicle status despite accessories or function
• Texas Comptroller Rule 3.348(a)(1) — equipment attached when the trailer was acquired
• Texas Comptroller Rule 3.348(b)(2)(A) — separately purchased equipment on which tax was paid
• Texas Comptroller Rule 3.348 — cited for the lump-sum, more-than-180-day lease answer

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/8808L1032B07

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TEXAS 78774

August 18, 1988

TO: Bob Frederick

FROM: Adina Whittemore

SUBJECT: Taxability Inquiry from Sammy Saab, New York Audit

SITUATION: The taxpayer is an out-of-state leasing company. They
lease truck tractors and trailers containing magnetic resonance
imaging equipment. The lessee uses the equipment to provide scan-
ning services at various hospitals in Texas. The service is per-
formed in the vehicle. The lease is an operating lease. The pri-
mary purpose of this vehicle is not to carry passengers except its
driver. The lessee provides the equipment with operators.

QUESTION: Is this really a motor vehicle subject to motor vehicle
sales and use tax, or is it "moveable specialized equipment" ?

ANSWER: The unit (picture attached) is a tractor trailer. Under
Rule 3.88(a) the unit remains a motor vehicle regardless of the
accessories attached or the function the vehicle serves.

FACTS: The equipment was purchased from a Texas vendor and tax was
paid at the time of purchase by the lessor. The lessee used the
equipment in Texas.

QUESTION: Is tax due on the equipment rental charge if the lessor
bills the rental charges for equipment and vehicle separately?

ANSWER: If the equipment was attached to the trailer when the les-
sor purchased the trailer, then the tractor, trailer and all acces-
sories were subject to motor vehicle tax. Billing separately will
not change the taxability of the equipment. see Rule 3.348(a) (1)

If the equipment was purchased separate from the trailer, and the
lessor paid tax on the equipment at the time of purchase, no tax
is due on the lease payments. see Rule 3.348(b)(2)(A)

QUESTION: What if the lessor bills one lump sum charge for the
equipment and the vehicle?

ANSWER: If the lessor paid tax on the equipment when it was pur-
chased, no tax is due provided the lease is for over 180 days.
see Rule 3.348

BOB BULLOCK
COMPTROLLER OF
PUBLIC ACCOUNTS

DATE: July 11, 1988

TO: Debbie Angus, Tax Correspondence Section

FROM: Sammy Saab, Auditor, New York Audit Office

SUBJECT: Taxability Inquiry - Accessories/Equipment Added To
Motor Vehicle

An audit of an out-of-state leasing company is currently in
progress. The issue revolves around leasing of a motorized
vehicle containing magnetic resonance imaging (MRI) system.
This equipment is used by the lessee to perform magnetic res-
onance scanning services at various hospitals in Texas. The
service is performed in the vehicle. The vehicle/equipment
is under an operating lease.

The following taxability issues need to be resolved:

1. The primary purpose of this vehicle/equipment is not to
   carry passengers except its driver (e.g., Bloodmobile). The
   lessee provides the equipment with operators.

a. Is this really a motor vehicle subject to motor vehicle
sales and use tax or is it "a moveable specialized equipment"
subject to the limited sales/use tax per Rule 3.349?

2. The equipment was purchased from a Texas vendor and tax
   was paid at the time of purchase by the lessor. The lessee
   used the equipment in Texas.

a. Is tax due on the equipment rental charge if the lessor
bills the rental charges for equipment and vehicle separately?
b. What if the lessor bills one lump sum charge for equipment
and vehicle?
c. What if the equipment/vehicle is subsequently moved from
Texas by lessee to service an out-of-state location?

3. The equipment was purchased out-of-state. Lessor paid
   tax to the vendor. Equipment was used by lessee out-of-state
   and subsequently moved into Texas where it is being used by
   lessee.

a. What are the answers to questions 2(a) and b above?
b. Does the provision for exemption under "use tax" rule 3.346
for equipment used out-of-state for more than one year apply?

4. The equipment was purchased out-of-state no tax was paid.
   The equipment was attached to or assembled to motor vehicle
   out-of-state and then brought into Texas.

a. What are the answers to question 2.(a) and (b) above?
b. Is use tax due on the purchase price of the equipment?
And motor vehicle use tax on the cost of the vehicle?
c. Is motor vehicle use tax due on the total cost of the
equipment and vehicle?

5. What if any one of the vehicles/equipments in 2,3, or 4.
   above is being used to perform services for hospitals located
   in Texas and out-of-state?