Was electricity used to repair, renovate, or convert qualifying commercial barges exempt because the vessel materials and labor were exempt?

Plain-English summary

Tax Code § 151.329(3) exempted materials and labor used to repair, renovate, or convert a vessel of at least eight tons displacement used exclusively and directly in a commercial enterprise.

That exemption did not extend to natural gas or electricity under § 151.317. The fact that vessel labor was exempt did not make the utilities used in performing that work exempt.

Utilities directly used to manufacture tangible personal property for sale could qualify for exemption. But utilities used later in selling the property or affixing it to a customer's barge as part of a repair, renovation, or conversion were taxable commercial uses.

Common questions

Did exempt vessel-repair labor make the electricity exempt? No.

Could manufacturing utilities be exempt? Yes, when directly used to manufacture tangible property for sale.

What about electricity used to affix that property to a customer's barge? It was taxable commercial use.

Citations and references

• Tex. Tax Code § 151.329(3)
• Tex. Tax Code § 151.317
• 34 Tex. Admin. Code Rule 3.297
• Hearing No. 16,719

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9002L0993E06

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller February 1, 1990

Dear ***:

Thank you for your letter regarding sales tax exemption on elec-
tricity used in the reconfiguration and repair of barges.

You state that your client manufactures barges. He also reconfi-
gures old barges, e.g., convert a dry cargo barge to a wet cargo
barge, or perhaps a non-toxic chemical barge to a toxic waste
barge. He also repairs barges. Your client states that at
least 95% of his customers are exempt from sales tax on repairs
indicating that the barges are engaged in interstate commerce.

Section 151.329 of the Texas Tax Code provides an exemption from
sales tax for certain ships and ship equipment. These exemptions
are outlined in the enclosed Rule 3.297 - Carriers.

Section 151.329(3) of the Texas Tax Code provides an exemption for
"materials and labor used in repairing, renovating, or converting
a ship or vessel that is of eight or more tons displacement and
that is used exclusively and directly in a commercial enterprise."

The exemption under Section 151.317 of the Texas Tax Code which
exempts natural gas and electricity except when sold for commer-
cial use does not extend to the exemption under Section 151.329.
Enclosed is an edited copy of Hearing No. 16,719.

The fact that the labor used in repairing, renovating, or con-
verting certain ships or vessels may be exempt does not cause the
natural gas or electricity used in performing these activities to
be exempt. The utilities directly used in manufacturing tangible
personal property for sale are exempt. The utilities the manufac-
turer later uses in selling the tangible personal property are
commercial uses and are taxable. Likewise, if your client sells
and affixes the tangible personal property to the customer's
barges causing a repair, renovation, or conversion, the utilities
used in affixing the tangible personal property are commercial
uses and are taxable.

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

If you have any questions or need additional information, you may
call me toll free at 1-800-252-5555, extension 3-4666, or the
regular number 512/463-4666. You may write to Tax Correspondence,
Comptroller of Public Accounts.

Sincerely,
Jo Ann Dieck
Tax Correspondence