Are parts and labor used to repair or refurbish railroad cars and locomotives exempt from Texas sales tax?

Plain-English Summary

The Texas Comptroller ruled that locomotives and railcars — complete with the truck (the wheel assembly) — are exempt from Texas sales tax whether purchased or sold, because Texas Tax Code Section 151.331 exempts "rolling stock" and locomotives. That exemption extends beyond the vehicles themselves: the labor and parts used to repair or refurbish locomotives and railcars are also exempt, and a taxpayer does not need to present an exemption certificate to buy those repair parts or labor tax-free.

The ruling also addresses fuel and supplies essential to operating locomotives and trains, which Section 151.331 separately exempts. For parts purchased to operate (rather than repair) locomotives or trains, a seller may accept an exemption certificate in lieu of collecting tax, though the letter frames this as optional ("may be given") rather than mandatory.

What This Means For You

Railroad car and locomotive repair shops

If your business refurbishes, repairs, or dismantles railroad cars and locomotives for reuse, the parts and labor you sell for that repair work are exempt from Texas sales tax. You do not need to collect an exemption certificate from your customer to treat these sales as exempt.

Railroads and rolling-stock owners

When you buy or sell a locomotive or railcar (with its truck), the transaction is exempt as rolling stock under Section 151.331. Fuel and supplies essential to running your locomotives and trains are exempt as well, and you may optionally furnish an exemption certificate for operational parts purchases in lieu of paying tax at the register.

Accountants and tax professionals

This 1994 letter distinguishes between parts/labor for repairing rolling stock (exempt automatically, no certificate needed) and parts purchased for operating locomotives/trains (exemption certificate may be used in lieu of tax). Because STAR letters bind the Department only for the original requester, confirm this reasoning still reflects current Comptroller policy before relying on it for a new transaction.

Q&A

Q: Do I need an exemption certificate to buy tax-free parts to repair a railcar?
A: No. The ruling states an exemption certificate is not required for labor and parts used to repair locomotives or railcars — the exemption applies without one.

Q: What about parts used to operate (not repair) a locomotive or train?
A: For those, an exemption certificate may be given in lieu of tax, meaning the seller can accept a certificate to support treating the sale as exempt.

Q: Does the exemption cover the whole railcar, or just parts?
A: It covers the whole unit — locomotives and railcars, complete with the truck — when purchased or sold, in addition to covering repair labor and parts.

Citations

• Tex. Tax Code § 151.331 (exemption for rolling stock and locomotives, and for fuel/supplies essential to their operation)

Source

Rolling Stock — Repair And Replacement Parts Vs Supplies And Equipment Used To Repair/Maintain Rolling Stock

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9409L1326C13

Original ruling text

September 12, 1994

Dear *****:

Thank you for your letter dated September 2, 1994, regarding sales tax as
it applies to refurbishing, repairing and mismantling railroad cars and
parts.

Texas Tax Code Section 151.331 exempts rolling stock and locomotives. Fuel
and supplies that are essential to the operation of locomotives and trains
are also exempt.

Therefore, locomotives and railcars (complete with the truck) are exempt
when purchased or sold. Labor and parts used to repair locomotives
or railcars are also exempt. An exemption certificate is not required.

An exemption certificate may be given in lieu of tax on parts purchased
for use in the operation of locomotives or trains.

This opinion is based on the facts you submitted. Other facts, though
similar, may yield different results.

You may call me toll free at 1-800-531-5441, ext. 5-0330. The direct
line is 512/475-0330. You may also write to Tax Administration,
Comptroller of Public Accounts.

Sincerely,

Bettie Peterson
Tax Administration Division

NOTE: Previous Accession Number 9409762L