Was leasing a permanently affixed above-ground storage tank larger than 500 barrels subject to Texas sales tax?

Plain-English summary

This letter corrected an earlier response about leasing permanently affixed, above-ground tanks larger than 100,000 gallons. Texas generally treated tanks over 500 barrels as real-property improvements, making their lease nontaxable.

If the lease stated or otherwise made clear that the tank remained tangible personal property, however, the lease was taxable regardless of size. The letter said no statute or rule directly established the 500-barrel threshold; the Comptroller developed it with industry and used 42 gallons per barrel.

What this means for you

Tank size was not conclusive. Contract language preserving tangible-personal-property status could make a large tank lease taxable.

Common questions

Were tanks over 500 barrels generally treated as realty? Yes.

Could contract language change the result? Yes.

Was the threshold codified? No.

Citations and references

The letter expressly said no statute or rule directly mentioned the 500-barrel threshold.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9107L1122C03

Original ruling text

July 29, 1991

To Whom it May Concern:

I am writing to amend my letter of July 22, 1991, regarding
the taxability of a lease of 100,000 gallon storage tanks. In a recent hearing
(copy enclosed), the administrative law judge commented on the fact that the
size of an above-ground storage tank should not be the sole determining factor
as to whether it is real property. What follows is a corrected response:

Thank you for your recent letter. As I understand it, your
client manufactures liquid food products. Your client owns or leases a number
of "permanently affixed 100,000 + gallon tanks" in Texas to store its products.
I understand that these tanks are located above-ground. Your client is
considering leasing its unneeded, empty tanks from time to time to third
parties. You ask whether your client is required to collect Texas tax on the
leases.

Generally, we would consider these tanks permanent
improvements to real property because their capacity exceeds 500 barrels.
Therefore, the lease or rental of such tanks is generally treated as a lease of
real property, which is not subject to Texas sales or use tax. However, if the
lease contract stipulates that the tanks shall remain tangible personal
property, or otherwise by its terms makes clear that the tanks remain tangible
personal property, then their lease is taxable regardless of the size of the
tank.

I cannot provide you with the requested statutory or
regulatory reference because there is no direct mention of the 500 barrel
threshold in the statutes or in our rules. We arrived at this figure several
years ago after consulting with the oil and gas industry, for the convenience
of both the industry and this agency in determining the tax consequences of
renting or leasing above-ground storage tanks. There are 42 gallons to a
barrel of oil, which is the standard we apply even outside the oil and gas
industry.

I apologize for any inconvenience that may have resulted from my earlier
response.

This opinion is based on the facts that you presented. Different facts,
though similar, might lead to different answers. If you have further
questions, feel free to write or call me at 1-800-252-5555, ext. 3-3889.

Sincerely,

John Christian
Attorney
Tax Administration Division