Was providing trailer-mounted searchlights with operators a taxable equipment rental or a nontaxable advertising service?

Plain-English summary

The searchlight business provided a nontaxable advertising service rather than renting equipment to customers. It did not charge customers sales tax, but it owed tax when buying its searchlight units.

The supporting memorandum emphasized control and operator activity. The business did not rent a unit without an operator. Operators delivered and blocked the trailers, installed bulbs, adjusted the equipment, started the generator and lights, aimed the beams, and locked trailers when leaving a site. Customer control of the units did not pass.

Common questions

Did the customer pay sales tax on the searchlight charge? No.

Did the provider buy the searchlights tax-free for rental? No. It paid tax on purchase.

What facts supported service treatment? The operator's active setup and control, and the absence of customer control over the equipment.

Citations and references

• Comptroller Rule 3.294, discussed in the supporting memorandum.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9008L1037F03

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

August 27, 1990

Dear **:

Thank you for your recent letters regarding your provision of
searchlights and operators.

After discussing the issue with Mrs. Dieck and ****, we
have classified your business as an advertising service. That
means you will not be required to charge tax to your customers.
However, you must pay tax on the searchlights at the time of
purchase.

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

INTEROFFICE BOB BULLOCK
MEMORANDUM COMPTROLLER OF
PUBLIC ACCOUNTS

TO: Steve Hiebert

FROM: Al Van Allen

SUBJECT: Seachlights

I brought up the "*** " issue at our weekly meting with
the attached memo. Chuck Bailey decided to call it a non-taxable
advertising service.

The notification letter to the TP is attached.

August 22, 1990

TO: Taxability

FROM: Al

SUBJECT: Searchlights - Rental or Advertising Service

TP provides searchlight for use in promoting events. Each light
system has 4 18 inch beams and is self contained on a 15 foot
trailer with its own generator. The units cost at least $30,000
each and rent for $300 per three hour engagement. The firm holds
itself out to be an outdoor advertising firm (contract attached)
and does not rent the units without an operator. However, the
operators may move back and forth between locations so a specific
unit wouldn't always have an operator present. The firm has 8
units and 3 operators.

The operators:

• deliver and block the trailers,

• unstrap the lights so they can rotate,

• adjust the gears and belts so the lights don't hit each
  other,

• install the high intensity bulbs
• turn on the generator and lights,
• direct the lights and focus the beams.

If the lights are operating properly and there is no security
problem at that location, the operator is free to delivery and
set-up another searchlight. Each operator carries a pager.

According to rule 3.294 (Rentals), the furnishing of equipment
with an operator for a single charge is presume to be a service.
But, providing maintenance, repair or supervision only is not
providing an operator.

Blacks Law Dictionary defines "operate" in automotive terms,
".... a personal act in working the mechanism...." However,
Websters is more expansive. (1: to bring about, 2: to cause
to function, b: to put or keep in operator.)

So, while the operator doesn't drive the light, the light
doesn't need a driver. However, it does need someone to cause
it to function an this is neither maintenance, repair nor super-
vision.

We have also have a TR (No. 324) that said that a sign trailer
placed at a customers location but where control of the trailer
did not pass to the customer was an advertising service and not
a rental of a motor vehicle. The key seemed to be control.

TP tells me that if the operator leaves the site, they put a
hitch lock on the trailer so that it cannot be moved.

Recommendation: We should call this an advertising service and
require them to pay tax on their units at the time of purchase.