How could a computer lessor recover Texas sales tax paid to the prior owner of a supplier business on computers bought for leasing?

Plain-English summary

A purchaser bought computers for leasing to a third party and paid sales tax to a business's prior owner. The Comptroller identified two ways to recover the tax.

First, the purchaser could request a refund or obtain an assignment of the seller's right to a refund and submit the completed assignment form and requested information. Second, it could claim a credit for tax paid on its sales-and-use-tax return under Rule 3.338(a).

The local-tax credit had an extra limitation: under Rule 3.338(a)(2), local tax paid to a supplier could be credited only against tax due to the same local taxing jurisdiction. The letter said that if the supplier collected Dallas city and Dallas MTA tax and the purchaser collected and reported those same taxes, the purchaser could claim the credit. It could amend returns or use the credit on future returns, provided it remained within the four-year limitations period described in the letter.

What this means for you

A purchaser that paid tax to a supplier on property acquired for taxable leasing was not limited to asking the supplier for cash back. The ruling described refund-assignment and return-credit routes, but required jurisdiction-by-jurisdiction matching for local tax.

Common questions

Could the purchaser ask for a refund? Yes, or it could obtain an assignment of the seller's refund right.

Could it instead claim a credit on its return? Yes, under Rule 3.338(a).

Could any local tax paid be credited? No. The local tax had to have been paid to the same local jurisdiction to which the purchaser was required to remit tax.

Could the credit be claimed on amended or future returns? The letter allowed either approach, within the stated four-year limitations period.

Citations and references

• 34 Tex. Admin. Code § 3.338(a) (credit for tax paid to suppliers)
• 34 Tex. Admin. Code § 3.338(a)(2) (local-tax credit limited to the same taxing jurisdiction)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9102L1078B01

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

JOHN SHARP
Comptroller February 11, 1991

Dear ** :

Your letter requesting a sales tax refund on computers purchased by
your client, *** , for the purpose of leasing them to a
third party was sent to me for review.

You stated that your client received a refund from ABC COMPANY on
the last purchase made. However, tax was not refunded on two prior
purchases which were made from the prior owner of the business.

Your client has the following options to obtain a refund of tax on
purchases made from the prior owner:

Your client may request a refund of tax or obtain an assignment of
the right to a refund from the business owner to whom the tax was
paid. Should the business owner assign its right to refund, enclosed
is an assignment form that it must complete. Upon completion, the
form and requested information may be submitted to this office for
a refund.

Or, your client may receive credit for the tax paid by claiming a
credit on his sales and use tax return. Please see section (a) of
the enclosed Rule 3.338, Allowance of Credit for Tax Paid to Suppli-
ers. Section (a) (2) states that the purchaser may claim a credit
for local taxes only if the local taxes paid were to the same local
taxing jurisdiction to which the purchaser is required to remit tax.
If the supplier collected local taxes for the city of Dallas and the
Dallas MTA, and your client collects and reports these same taxes, a
credit can be taken on the tax return. Your client may file amended
returns to claim credit against the rental receipts, or credit can
be taken on future returns- as long as the credit is within the sta-
tute of limitation period of four years. Enclosed is a copy of our
refund procedure.

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

If you have any questions or need additional information, you may
call toll free 1- 800- 252-5555, extension 3-4666, or the regular
number 512/463-4600. You may write to me at Tax Administration
Division, Comptroller of Public Accounts.

Sincerely,
Jo Ann Dieck
Tax Correspondence