When could a lump-sum vessel repairer buy repair materials tax-free in Texas?

Plain-English summary

The Comptroller distinguished two vessel exemptions. A lump-sum repairer could not use the owner-or-operator materials exemption merely because a vessel operated exclusively in foreign or interstate coastal commerce. That exemption covered materials bought by the owner or operator and loaded aboard for maintenance and operation or incorporated into the ship.

The repairer could buy qualifying materials tax-free when repairing a vessel of at least eight tons displacement that was used exclusively and directly in a commercial enterprise. For that qualifying repair, exempt materials included sand, acetylene, abrasives, sandpaper, welding oxygen, paint, and coatings. Machinery, equipment, and hand tools used to perform the work remained taxable.

What this means for you

The vessel had to qualify under the commercial-enterprise test before the lump-sum repairer could issue exemption certificates for repair materials. The exemption covered materials consumed in or incorporated through the repair, not the equipment used to perform it.

Common questions

Was exclusive foreign or interstate operation enough for the repairer? No. The letter said that owner-or-operator exemption did not by itself let the lump-sum repairer buy materials tax-free.

What commercial vessel qualified? One of at least eight tons displacement used exclusively and directly in a commercial enterprise.

Was sand used in sandblasting exempt? Yes for a qualifying repair, but the sandblasting equipment was taxable.

What records were required? The repairer had to obtain a properly completed exemption certificate from the vessel owner or operator and issue proper certificates when buying qualifying materials.

Citations and references

• Texas Tax Code § 151.329(3), concerning qualifying commercial vessels.
• Texas Tax Code § 151.329(4), concerning materials for vessels operating exclusively in foreign or interstate coastal commerce.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9008L1038F03

Original ruling text

August 20, 1990

Dear ** :

I am writing in response to your letter of May 28, 1990, in which
you requested information about the tax responsibilities of lump-
sum repairmen of vessels.

In answer to your specific questions:

1. Can a lump-sum repairman of vessels issue an exemption certifi-
   cate for the purchase of materials used to repair a vessel operat-
   ing exclusively in foreign or interstate coastal commerce?

Answer: No, unless the vessel meets the requirements described in
answer "2" below. The materials exemption for vessels "operating
exclusively in foreign or interstate coastal commerce" is limited
to materials purchased by the owner or operator that are loaded on
the ship and used in its maintenance and operation, or enter into
and become component parts of the ship. See Tax Code 151.329 (4).

2. can a lump-sum repairman issue an exemption certificate for the
   purchase of materials used to repair a vessel of eight tons or more
   displacement which is used in a commercial enterprise?

Answer: Yes, if it is used exclusively and directly in a commercial
enterprise. This question mirrors the statutory language in Tax
Code 151.329 (3).

3. If the answers to 1 and 2 above are "yes," then can the lump-sum
   repairman also issue an exemption certificate for the purchases of
   sand, acetylene, abrasives, sandpaper, oxygen (used in welding),
   paint and coatings used to make the necessary repairs?

Answer: Yes. If the vessel qualifies as described, then the lump-
sum repairman may purchase tax free all materials used in repair-
ing, renovating, or converting it. This includes sand, acetylene,
abrasives, sandpaper, oxygen used in welding, paint and coatings.
It would not include machinery, equipment, or hand tools used to
perform the repairs. For example, sand used in sandblasting is a
material used in performing the repair and would be exempt, but
the sandblasting equipment is taxable.

4. What are the tax responsibilities of a lump-sum repairman of
   commercial vessels?

Answer: The repairman must document any claimed exemption by ob-
taining a properly completed exemption certificate from the owner
or operator of the vessel. He must issue properly completed exemp-
tion certificates when purchasing qualified materials for exempt
repairs. He must pay tax on non-exempt tools, machinery, equip-
ment, and materials. He must collect tax on non-exempt repairs.

I have enclosed copies of the current statute and rule governing
commercial vessel repairs. As you can see, lump-sum and separated
repairmen are treated alike.

These answers are based on the facts presented. Different facts
might result in different answers. Feel free to write with further
questions or call me at 1-800-531-5441, ext. 3-3889.

Sincerely,

John Christian
Taxability Section
Legal Services Division