Is the rental of equipment like a sand and gravel plant taxable, and does leasing it together with real property change the answer?

Plain-English summary

A taxpayer asked the Comptroller about the taxability of renting a sand and gravel plant. The letter illustrates a broader rule about tangible personal property leased together with real property.

The rental of tangible personal property — such as a sand and gravel plant — is taxable. However, the lease is not taxable if the contract also includes the lease of real property. So if the plant is leased together with the taxpayer's pit (real property) under the same contract, the lease charge is nontaxable — but in that case sales tax must have been paid on the plant when it was purchased (because it is not being acquired for a taxable rental).

By contrast, renting the plant without the pit or other real property is taxable. The Comptroller enclosed Rule 3.294 (Rental and Lease of Taxable Items). It also flagged an important update: since October 1, 1987, all transportation and installation charges for the lease of tangible personal property are taxable, notwithstanding subsections (e)(2) and (e)(3) of Rule 3.294.

What this means for you

Owners leasing equipment (like a sand and gravel plant)

Leasing equipment by itself is a taxable rental — collect tax on the lease charge. If you instead lease the equipment as part of a contract that also leases real property (such as the land or pit it sits on), the lease is nontaxable, but then you must have paid sales tax on the equipment when you bought it.

Structure of the contract matters

The taxable/nontaxable line depends on whether real property is included in the same lease. Bundling the equipment with real property changes the treatment — and the corresponding tax you owe on your own purchase of the equipment.

Transportation and installation charges

Do not rely on older provisions exempting transportation or installation for leased TPP. Since October 1, 1987, those charges are taxable for the lease of tangible personal property, overriding subsections (e)(2) and (e)(3) of Rule 3.294.

Common questions

Q: Is renting a sand and gravel plant taxable in Texas?
A: Yes. Renting tangible personal property such as a sand and gravel plant is taxable.

Q: What if I lease the plant together with my pit?
A: Then the lease is not taxable, because the contract includes the lease of real property. In that case sales tax must have been paid on the plant at the time it was purchased.

Q: What if the lease is just the equipment, with no real property?
A: The rental is taxable.

Q: Are transportation and installation charges on the lease taxable?
A: Yes. Since October 1, 1987, all transportation and installation charges for the lease of tangible personal property are taxable.

Q: Can I rely on this 1988 letter today?
A: Treat it as guidance only. It is based on the facts presented and can change with different facts; on the STAR system it binds the Comptroller only as to the taxpayer it was issued to and may no longer reflect current policy.

Citations and references

Rule cited: 34 Tex. Admin. Code § 3.294 (Rental and Lease of Taxable Items) — enclosed with the letter. The letter notes that, effective October 1, 1987, all transportation and installation charges for the lease of tangible personal property became taxable, contrary to subsections (e)(2) and (e)(3) of that rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8809L0897F14

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller September 1, 1988

Dear **:

Thank you for your inquiry regarding the taxability of the rental
of a sand and gravel plant.

The rental of tangible personal property such as a sand and gravel
plant is taxable. However, the lease of a sand and gravel plant
would not be taxable if the contract for the lease includes the
lease of real property. Therefore, the lease charge would be
nontaxable if the plant is leased with your pit. Under these
circumstances, sales tax must have been paid on the sand and
gravel plant at the time of purchase.

On the other hand, the rental of a sand and gravel plant that
does not include the rental of your pit or other real property
would be taxable. I have enclosed Comptroller's Rule 3.294
(Rental and Lease of Taxable Items) which addresses the taxability
of your lease situation. You should note that all transportation
and installation charges for the lease of tangible personal
property became taxable on October 1, 1987, contrary to the
provisions of subsections (e)(2) and (e)(3) of Rule 3.294.

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

If you have any questions, please contact Tax Correspondence: You
may call toll free 1-800-252-5555, or our regular number is
512/463-4600.

Sincerely,
Bob Jeffcoat
Tax Correspondence