Did a railroad's electronic load-cell scale qualify for the Texas exemption for supplies essential to operating trains?

Plain-English summary

A licensed railroad common carrier installed or planned to install electronic load cells beneath a short railroad bridge in its main track. The scale weighed originating railcars so freight charges could be assessed.

The Comptroller did not have enough information to decide whether the scale was exempt. Although weighing might be necessary to the carrier's business, the letter said it was unclear whether the scale was essential to operating rolling stock or locomotives under Rule 3.297(d).

The railroad had to provide details showing how the load cells were attached to the bridge and identify the federal or state regulation requiring the cars to be weighed in order to operate the train.

The letter explained that track materials could qualify as supplies essential to train operation. Labor to remodel, repair, or renovate existing track was taxable under Rule 3.357. Materials for depots or other nonessential structures were taxable, while labor could be exempt new-construction labor or taxable repair and remodeling labor depending on the work.

What this means for you

A railroad purchase was not exempt merely because it was useful or required for the carrier's business. The carrier needed to connect the item to train operation and the regulatory requirement supporting that necessity.

Common questions

Did the Comptroller approve the scale exemption? No definitive answer was given.

What additional proof was requested? The installation details and the regulation requiring the weighing for train operation.

Were track materials exempt? The letter said track materials were exempt as essential supplies.

Was existing-track repair labor exempt? No; it was taxable under Rule 3.357.

Citations and references

• 34 Tex. Admin. Code Rule 3.297(d) — carrier exemption for supplies essential to train operation
• 34 Tex. Admin. Code Rule 3.357 — repair and remodeling of real property

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9107L1119G03

Original ruling text

July 9, 1991

Dear ****:

Thank you for your recent letter concerning the scale that *****
has installed or will install.

You stated in your letter that as a "licensed common carrier, *****
is required to weigh all originating railcars for the assessment of freight
charges." In our telephone conversation you described the scale as electronic
devices called load cells underneath a short railroad bridge, which is part of
the main track system.

Although the scale may be necessary for your operation as a common
carrier, it is not clear that the scale is essential to the operation of the
rolling stock or the locomotives. Please refer to section (d) of Rule
3.297-Carriers. A railroad company is not exempt from paying sales and use tax
on all of its purchases. The Texas Tax Code provides an exemption from tax on
locomotives, rolling stock, fuel and supplies essential to the operation of
trains if required by federal or state regulation.

Track materials are exempted as supplies essential to operate the train;
however, the labor to remodel, repair or renovate existing tracks is taxable
under Rule 3.357-Repair and Remodeling of Real Property. The materials to
construct or repair depots or other nonessential structures are taxable. The
labor may be exempt as new construction labor or taxable under Rule 3.357.

Please provide information that clearly shows how the load cells are
affixed to the bridge and information that clearly indicates which federal or
state regulation requires that the railcars be weighed in order to operate the
train.

This opinion is based on the facts that you presented. If there are
additional or different facts, the opinion may change.

Please feel free to contact me if you have any additional questions. You
may write me, call toll-free 1-800-252-5555 from anywhere in the United States
or phone 512/463-4600.

Sincerely,

Julie Pesl
Tax Administration Division