Are a television, a VCR, and pre-recorded or blank video cassettes sold for use on a maritime vessel exempt from Texas sales and use tax as component parts of the vessel or as sea stores/ships' stores?

Plain-English summary

A taxpayer wrote to the Texas Comptroller's Tax Policy Division asking about the taxability of pre-recorded movies on video tapes sold to maritime vessels. Bettie Peterson of the Tax Administration Division responded on June 16, 1995.

The letter draws a clear line between equipment that becomes part of the vessel and media that doesn't:

• Televisions and VCRs are treated as component parts of a vessel — and can therefore be exempt on that basis — "when bolted or otherwise firmly attached to the vessel," citing Rule 3.297(b)(2)(B).
• Video cassettes cannot be attached to a vessel, so a video cassette can never be a component part of a vessel, regardless of whether it holds a pre-recorded movie or is blank.
• A video cassette also doesn't qualify as a sea stores item, because sea stores are items used or consumed in the operation and maintenance of a ship or vessel, and a video cassette isn't used or consumed in that way.
• A video cassette could potentially qualify as a ships' stores item, but only if it is stocked for sale to crew members or passengers, and ships' stores items are sold only in international waters.

The letter notes the answer is based on the facts presented and that different facts, even if similar, may result in different answers.

What this means for you

Vessel operators, ship suppliers, and marine equipment sellers

If you're selling or installing a television or VCR that will be bolted or otherwise firmly attached to a vessel, it can be treated as a component part of the vessel under Rule 3.297(b)(2)(B), which may support an exemption on that basis. A video cassette — whether pre-recorded with a movie or blank — cannot be treated as a component part under any circumstances, because it physically cannot be attached to the vessel.

Businesses selling video cassettes to vessels

Don't assume video cassettes qualify for a sea stores or ships' stores exemption just because they're being delivered to a ship. They are not sea stores, since they aren't consumed in operating or maintaining the vessel. They could only potentially qualify as ships' stores if they are stocked for sale to crew or passengers and the sale happens in international waters — a narrow and fact-specific exception.

Accountants and tax professionals

When advising clients on vessel-related equipment purchases, distinguish between items that are physically installed/attached to the vessel (potential component parts) and consumable or resale items (potential sea stores or ships' stores). This letter illustrates that the Comptroller applies these categories narrowly and based on the specific facts presented.

Common questions

Q: Is a television installed on a vessel exempt from Texas sales tax?
A: It can be treated as a component part of the vessel — a category that may qualify for exemption — if it is bolted or otherwise firmly attached to the vessel, per Rule 3.297(b)(2)(B).

Q: Is a VCR treated the same way as a television?
A: Yes, the letter treats a television and/or a VCR the same way: both can be component parts of a vessel when bolted or otherwise firmly attached to it.

Q: Can a video cassette (with a movie or blank) be a component part of a vessel?
A: No. A video cassette cannot be attached to a vessel, so it cannot be a component part of a vessel under any facts.

Q: Can a video cassette qualify as sea stores?
A: No. Sea stores are items used or consumed in the operation and maintenance of a ship or vessel, and a video cassette is not used or consumed in that way.

Q: Can a video cassette qualify as ships' stores instead?
A: Only if it is stocked for sale to crew members or passengers, and only when sold in international waters — that is how the letter describes ships' stores generally.

Citations and references

Regulations:

• 34 Tex. Admin. Code Rule 3.297(b)(2)(B)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9506L1352B01

Original ruling text

June 16, 1995

Dear *****:

Thank you for your letter dated June 2, 1995, concerning the taxability of
pre-recorded movies on video tapes sold to Maritime vessels.

A television and/or a VCR will be considered component parts of a vessel
when bolted or otherwise firmly attached to the vessel. Rule 3.297(b)(2)(B).

A video cassette cannot be attached to a vessel; therefore, a video cassette
cannot be a component part of a vessel. A video cassette is not used or
consumed in the operation or maintenance of a ship or vessel and is not a
sea stores item.

Our understanding of sea stores and ships' stores are described below.

Sea stores stock items for use and consumption in the operation and
maintenance of a ship or vessel.

Ships' stores stock items that are held for sale to crew members or
passengers; these items are sold only in international waters.

This opinion is based on the facts presented. Different facts although
similar may result in different answers.

You may call or write me for additional information or if you have any
questions. The toll free number is 1-800-531-5441, and my extension is
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 9506193L