When were fishing tools treated as taxable rentals rather than taxable well services, and could the tools be bought for resale?

Plain-English summary

The Comptroller treated fishing tools supplied without an operator as rented tangible personal property. The rental company could buy the tools with a resale certificate and collected sales tax on the rental charge. Repair charges for damaged tools were taxable, while a separately stated charge to replace a lost item was not.

Adding a supervisor who only instructed the customer's drilling crew did not turn the rental into a well service. The supervisor's charge became part of the taxable rental base, and the tools remained eligible for resale purchase.

Supplying the tools with an operator was different: that was a taxable well service, not an equipment rental. The service company owed tax on its materials, tools, and equipment and collected tax on the customer's total service charge. Tools held for rental under a resale certificate had to be kept separate from tools used to perform services.

Common questions

Could fishing tools rented to customers be purchased for resale? Yes.

Did providing a supervisor change the rental into a service? No, when the supervisor only instructed the customer's crew; the supervisor charge was taxable as part of the rental.

What if the company supplied an operator? The transaction was a taxable well service.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8901L0921D11

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller

January 13, 1989

Dear ***:

Thank you for your letter of December 21, 1988 concerning the purchase of
fishing tools.

Situation 1 - A customer contacts your company to perform a fishing
tool job. The fishing tools, without a supervisor, are rented to the
customer at fair market rental value for a specified period of time.
The drilling company provides the personnel to operate the fishing
tool(s). Can the fishing tools be purchased tax free?

Response: Yes. You may issue a resale certificate in lieu of the sales
tax at the time of purchase of rental equipment. Rule 3.294(i)(1).
Rentals of tangible personal property, such as fishing tools have been
taxable since September 1, 1961. Sales tax is collected on the rental
charge to your customer. Charges for repair of damaged items are also
taxable. A charge for replacement of lost items is not taxable if
separately stated to the customer.

Situation 2 - A taxable customer contacts your company to perform a
fishing tool job. This time a supervisor is sent to instruct the drill-
ing crew how to use the tools. Can the fishing tools be purchased tax
free?

Response: Yes.If the company merely provides equipment (fishing tools)
and a supervisor, the company is not providing services but renting
equipment. The charge for the supervisor's time is part of the tax base
as an expense connected with the rental. Rule 3.324(c)(1). A resale
certificate may be issued in lieu of the sales tax for the rental equip-
ment.

Providing fishing tools with an operator is a taxable well service ef-
fective October 2, 1984, not a rental of equipment. The service company
owes tax on all materials, tools and equipment used to perform the ser-
vice and tax must be collected from the customer on the total charge for
the service. Rule 3.324(d)(1)(2). A service company that issues a re-
sale certificate for tools which it will rent to others must keep those
tools separate from those it uses to perform services. Rule 3.324(c)(2).

The **** and the ******
are renting fishing tools both before and after October 1, 1987. The
providing of a supervisor with a rental tool has never rendered the sale into
a service. Tools purchased by either company can be purchased with a resale
certificate. Although the rental of a tool with a supervisor is not
addressed in the well servicing rule until the current November 15, 1988,
version, that change is applicable to rentals before that date.

Enclosed are rules 3.324 and 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 or need more information, please call our toll-free
number 1-800-252-5555. The regular number is 512/463-4600. You may write me
at Tax Correspondence, Comptroller of Public Accounts.

Sincere]y,
Julie Pesl
Tax Correspondence