Did a computer remain exempt as an export when testing, software installation, foreign customs problems, and site preparation delayed its shipment from Texas?

Plain-English summary

The Comptroller agreed that the subsidiary's computer purchase was exempt as an export even though the equipment stayed in Houston for months before shipment to Algeria.

The computer was specially configured for North Africa and Europe. It remained at the vendor's staging facility for hardware integration, software installation, testing, and quality assurance, and it was never used in Texas to process seismic data. Shipment was delayed by Algerian customs and the need to prepare the foreign site, including flooring, electrical circuitry, and air conditioning.

Those records supported overcoming the storage presumption in Rule 3.323(c)(3) and applying the Tax Code section 151.307 export exemption on these facts.

Common questions

Did the delay defeat the export exemption? No.

Was the computer used operationally in Texas? No. It was staged and tested but not used to process seismic data before export.

Why was shipment delayed? Foreign customs issues and preparation of the Algerian installation site.

Citations and references

• Tex. Tax Code § 151.307.
• Comptroller Rule 3.323(c)(3).

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9005L1022D12

Original ruling text

May 29, 1990

Dear **:

I have reviewed the information you submitted and agree that the
computer purchase from CORP C by CORP ABC is sales tax exempt as
an export.

This opinion is based on the facts you presented. Other facts,
though similar, may yield different results.

If you have questions or need more information, please call our
toll- free number 1- 800- 531-5441. My direct line number is
463-4680 [FAX (512) 475-0900]. You may write to me in care of
Taxability Section.

Sincerely,

Al Van Allen
Taxability Section
Legal Services Division

May 3, 1990

CERTIFIED MAIL

Mr. Al Van Allen
Legal Services
Comptroller of Public Accounts
P.O. Box 13528
Austin, Texas 78711

Dear Mr. Van Allen:

As we discussed over the telephone, one of our wholly-owned
subsidiaries, CORP ABC (), concluded a production sharing
agreement with CORP B, the national oil and gas company of
Algeria, effective January 1, 1990. As a condition of the
agreement CORP ABC will install, operate and maintain a seismic
processing center in ***, Algeria. The center
must be operational no later than June 30, 1990.

The main piece of equipment for the center is a convex
Supercomputer Model C210 which was ordered last August directly
from the manufacturer by a Houston vendor, CORP C, (****).
The computer which operates on 220 volts, 50 cycles was configured
specifically for use in North Africa and Europe.

In December, CORP C received the computer and peripheral
equipment from the manufacturer and staged the system at
its facility in Houston. Staging consists of integration
and verification of hardware components and systems and application
software as well as quality assurance testing.
These procedures were completed in late December and the
system was accepted and paid for by CORP ABC. During February
and March of this year, CORP D (***) a Houston based
company, installed specialized software on the computer to
compliment the basic software provided by CORP C. CORP D
completed testing its software in April and the system was
ready for export to Algeria.

The system will remain at the CORP C staging facility until
CORP C disconnects it from the power supply, packs and
crates the equipment for air shipment to Algeria, and turns
it over to a freight forwarder. It has not been, nor will
it be, used to process seismic data prior to its installation
in ** .

There have been delays in shipping the system to Algeria
because of difficulties with Algerian customs authorities
which have held-up importation of raised flooring, electrical
circuitry and air conditioning units, all of which are
necessary for the proper operation of the system. These
site preparation materials and equipment are now in route
by ship to Algeria. In order to minimize the time that the
computer is disconnected from power and the number of times
that it is physically moved, CORP C will delay preparation
of the equipment for export until the site is properly prepared.
As soon as the equipment reaches ****, CORP C
will install it at the site and assure that the system is
functioning properly.

Based on the facts discussed above, we submit that the storage
presumption in Rule 34 TAC Section 3.323(c)(3) should be
overcome in this situation. Specifically, we respectfully
request a written determination that the export exemption
stemming from Texas Tax Code Section 151.307 applies to the
facts set forth above even though shipment will be delayed
until the site is properly prepared.

Should you have any questions, please do not hesitate to
give us a call; and, if for some reason you don't expect to
be able to make a favorable determination, we would appreciate
the opportunity to discuss the situation further.

Very truly yours,