Which parts of a new narrow-gauge railroad project qualified for Texas's rolling-stock and train-supplies sales-tax exemption?

Plain-English summary

The requester planned a three-foot-gauge railroad with two stations, a train-maintenance facility, a diesel engine, a tender, and four passenger cars.

The Comptroller said the railroad was comparable in size to commercial and industrial railroads previously granted the exemption in Tax Code § 151.331. The engine, tender, passenger cars, and materials actually incorporated into the operating track—such as rails, ballast, bridges and trestles, cross ties, and other track material—qualified for exemption.

Materials for the maintenance facility, the two stations, and other construction not directly essential to train operation were taxable. Qualifying materials and equipment could be bought tax-free by giving the supplier a completed exemption certificate at purchase.

What this means for you

The exemption followed rolling stock and construction directly essential to operating the train, not every structure included in the broader railroad project.

Common questions

Were the locomotive and passenger cars exempt? Yes.

Were rails, ballast, ties, and bridges exempt? Yes, when actually incorporated into the railroad track.

Were station materials exempt? No.

How were qualifying purchases documented? With a completed exemption certificate given to the supplier.

Citations and references

• Tex. Tax Code § 151.331 — rolling stock, train fuels, and supplies exemption applied by the letter

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9105L1109D07

Original ruling text

May 8, 1991

Dear ***:

Your letter, concerning the taxability of the construction of a narrow
gauge railroad and associated facilities, has been assigned to me for
review and response.

The project will include the building of a 3 foot gauge railroad, two
rail stations, and a train maintenance facility. The owners will
operate one 29 ton diesel driven engine, one 12 ton tender, and four 19
ton passenger cars.

Section 151.331, of the Texas Tax Code, Rolling Stock; Train Fuels and
Supplies, exempts rolling stock, locomotives, and fuel and supplies
essential to the operation of locomotives and trains. The railroad you
are building is equivalent in size to commercial and industrial railroads
previously exempted by our department and thus qualifies for exemption.

The engine, tender, passenger cars, and the materials actually incorporated
into the railroad track such as rails, ballast, bridges and trestles, cross
ties and other track material will qualify for exemption from Texas sales
and use tax. Materials for the maintenance facility and for the two rail
stations or other construction not directly essential to the operation
of the train are taxable.

Materials and equipment qualifying for exemption can be purchased tax
free by issuing a completed exemption certificate to the supplier at the
time of purchase.

This opinion is based on the facts presented. If there are different or
additional facts, this opinion could change.

If you have further questions or need more information, feel free to call
me at 512/463-4502, or 1-800-252-5555 from outside Austin. You may write
me at Tax Administration Division. [FAX 512/475-0900]

Sincerely,

Gilbert Zamora
Tax Administration Division