Could parts and consumable supplies bought in Texas for African and federal offshore drilling platforms qualify for export or drilling-equipment exemptions?

Plain-English summary

A company bought thirteen categories of parts, cables, hoses, manifolds, motor and air-tool parts, pressure components, flags, and safety consumables in Texas for drilling platforms in Africa and federal Gulf of Mexico waters. It had paid vendors tax and asked about export and mineral-production exemptions.

Rule 3.323 allowed an export refund for tangible personal property actually exported from the United States without being used or consumed in Texas. Parts and consumable items were not excluded merely because of their form; they could qualify if the export documentation and no-Texas-use requirements were met.

Tax Code § 151.324 and Rule 3.332 provided a narrower exemption for specified mineral-exploration and production property. The Comptroller did not decide which listed items qualified because the requester had not supplied detailed information about their actual use.

The letter also declined to say whether two named packing or air-freight companies were acceptable export firms. The Comptroller did not license or maintain records on freight forwarders, common carriers, or export packers and instead pointed to Rule 3.297's definition of licensed and certificated carriers.

What this means for you

Offshore drilling operators

Analyze export and mineral-equipment exemptions separately. Export treatment focused on documented movement out of the United States without prior use; the drilling exemption focused on the item's actual function.

Accountants and tax professionals

An item list alone was insufficient for the § 151.324 analysis. Preserve detailed use descriptions and the Rule 3.323 export records.

Common questions

Could parts and consumables qualify for export refunds? Yes, if actually exported without Texas use or consumption and properly documented.

Did the Comptroller approve the listed items under the drilling-equipment exemption? No. More use details were required.

Did the Comptroller certify the named shipping companies? No. The agency said it did not license or keep records on those businesses.

Citations and references

• Tex. Tax Code § 151.307 (export exemption)
• Tex. Tax Code § 151.324 (equipment used elsewhere for mineral exploration or production)
• 34 Tex. Admin. Code Rule 3.323 (imports and exports)
• 34 Tex. Admin. Code Rule 3.332 (mineral exploration and production equipment)
• 34 Tex. Admin. Code Rule 3.297 (licensed and certificated carriers)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9202L1158F01

Original ruling text

February 6, 1992

Dear **:

Thank you for your letter regarding items purchased in Texas for
export to oil and gas drilling platforms located on various leases
in Africa and federal offshore waters in the Gulf of Mexico. I
apologize for the delay in responding. Specifically, your client
paid tax to the vendors of the following items, and you were wondering
whether any of them qualify for exemption under Tax Code Section
151.324 (Equipment Used Elsewhere for Mineral Exploration or
Production) or Tax Code Section 151.307 (Exemptions Required by
Prevailing Law [Exports]).

You listed the following items that your client purchased:

1. Expansion Joints
2. Water Hoses
3. Pump Sub
4. Strip Heater Thermometer
5. 5' X 8' Nylon Flags
6. Electric Cables
7. Aircraft Manifold
8. Choke Manifold
9. Consumable safety items (dust masks, goggles, safety clothing,
   absorbent oil)
10. Air Tool Parts
11. Motor Parts
12. Pressure Switches
13. Neoprene Diaphragms

Question 1: Does the fact that because some of these items being
exported are parts and consumable items make them taxable?

Answer: I have enclosed a copy of Rule 3.323 (Imports and Exports),
which sets out the guidelines for documenting exports and obtaining
tax refunds from a retailer to whom tax was paid on an item that was
exported. An item of tangible personal property taxed under the sales
and use tax act can qualify for a refund if it is exported from the
United States as described in the Rule, and subject to the limitations
contained therein. This can include parts and consumable items
purchased in Texas, but actually exported without having been used or
consumed in Texas.

The exemptions contained in Tax Code Section 151.324 are more narrowly
defined. I have enclosed a copy of Rule 3.332, regarding the exemptions
for certain drilling equipment and other tangible personal property used
in oil, gas, sulphur, and other mineral exploration or production.

If you would like a more specific answer regarding the applicability
of this exemption to the items you listed, please submit additional,
detailed information regarding the actual use of the items.

Question 2: Our client uses PACKING CO A and AIR FREIGHT M to handle
the shipments on a timely basis. Are these two companies acceptable to
the State of Texas as certified export firms for non-tax purposes?

Answer: Because this agency does not license freight forwarders,
common carriers, or export packers, or keep records pertaining to them,
I cannot answer this question. I have enclosed a copy of Rule 3.297,
which defines "licensed and certificated carriers".

This opinion is based on the facts 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