A permitted retailer is selling a used tug it had been using for its own hauling (not income-producing) to a company that plans to claim a ship/vessel sales tax exemption. Is the sale of the tug itself exempt?

Plain-English summary

A permitted Texas retailer was selling a used tug (motor vessel) it had been using for its own hauling — not to earn rental/charter income — to a company that planned to use the tug in its own business operations. The buyer claimed a sales tax exemption under Rule 3.297(b)(4), which covers vessels operating exclusively in foreign or interstate coastwise commerce. The seller asked the Comptroller to confirm its own reading: that this coastwise-commerce exemption applies only to consumable materials and supplies used to operate/maintain such vessels, not to the sale of the vessel itself, and that a separate exemption for sales of commercial vessels (Rule 3.297(b)(1)) applies only when the BUILDER sells the vessel — not when a later owner resells it.

The Comptroller confirmed the seller's reading was correct on both points. Because the seller is a permitted retailer (not making a one-off "occasional sale"), the occasional-sale exemption under Tax Code Section 151.304 and Rule 3.316 doesn't apply either. Between the two possible exemption routes — occasional sale, or the ships/ship-equipment exemptions under Section 151.329 and Rule 3.297 — neither covered this sale of a used vessel by its prior owner. The buyer's exemption certificate was therefore invalid, the seller could not accept it in good faith, and the seller remained obligated to collect and remit Texas sales/use tax on the sale of the tug.

What this means for you

Businesses selling used vessels, vehicles, or equipment they previously used internally

Don't assume a buyer's claimed exemption certificate is automatically valid just because a similar-sounding exemption exists for new sales from a manufacturer/builder. Here, the ship/vessel builder-sale exemption (Rule 3.297(b)(1)) explicitly does NOT extend to resales by subsequent owners — the identity of the seller (builder vs. anyone else) can be as important as what's being sold.

Sellers evaluating whether they can make an "occasional sale"

If you're a permitted retailer, you generally cannot claim the occasional-sale exemption (Tax Code Section 151.304, Rule 3.316) regardless of whether the specific item being sold (like a vessel used for your own internal hauling, not income-producing) resembles a one-off, non-retail transaction.

Buyers of used commercial vessels/vehicles claiming a commerce-related exemption

Read the specific exemption language carefully — an exemption for materials/supplies used to operate a vessel (like Rule 3.297(b)(4)'s coastwise-commerce exemption) does not automatically extend to the purchase of the vessel itself.

Common questions

Q: Does the exemption for vessels in foreign or interstate coastwise commerce cover buying the vessel itself?
A: No — Rule 3.297(b)(4) covers consumable materials and supplies used to operate and maintain such vessels, not the sale of the vessel.

Q: Does the commercial-vessel sale exemption under Rule 3.297(b)(1) apply when I buy a used vessel from its prior owner rather than the builder?
A: No — that exemption applies only to a sale by the builder of the vessel, not to sales by subsequent owners.

Q: Can a permitted retailer claim the occasional-sale exemption on a vessel it used for its own (non-income-producing) hauling?
A: No — being a permitted retailer takes the occasional-sale exemption (Tax Code Section 151.304, Rule 3.316) off the table regardless of how the vessel was used internally.

Q: What happens if a seller accepts an invalid exemption certificate anyway?
A: The seller remains obligated to collect and remit the Texas sales/use tax on the sale — an invalid certificate does not shift or excuse that liability.

Q: Can I rely on this letter for my own vessel sale?
A: No. It's based on the specific facts presented, and the letter states the opinion may change on additional or different facts.

Citations and references

• Tex. Tax Code § 151.304 (occasional sale exemption)
• 34 Tex. Admin. Code Rule 3.316 (occasional sales)
• Tex. Tax Code § 151.329 (exemptions for ships and ship equipment)
• 34 Tex. Admin. Code Rule 3.297(b)(1) (commercial vessel exemption limited to sale by the builder)
• 34 Tex. Admin. Code Rule 3.297(b)(4) (vessels in foreign or interstate coastwise commerce — covers consumables/supplies, not the vessel sale)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9804377L

Original ruling text

April 27, 1998

Dear Mr. **:

Thank you for writing to ask about the sales and use taxability of the sale of
a motor vessel. Your client is selling a tug to a company who will use it in
their business operations.

Your client is not in the business of selling motor vessels but is a permitted
retailer who believes it is unable to make an occasional sale under the
provisions of Tax Code Section 151.304 and Rule 3.316. Your client uses the
tug in hauling for itself and is not income producing. The purchaser of the
tug is claiming exemption from the tax in accordance with Rule 3.297(b)(4) for
vessels operating exclusively in foreign or interstate coastwise commerce.

Your interpretation of this provision is that it applies to sales of consumable
materials and supplies for use in the operation and maintenance of such
vessels, but not to the sale of the vessel itself. Additionally, you believe
that the tax exemption allowed for the sale of a commercial vessel under Rule
3.297(b)(1) applies only to the sale by the builder of the vessel, but not to
sales by subsequent owners of the vessel.

You are correct. There is not an exemption available for the purchase of the
vessel from your client under either the occasional sale provisions of Tax Code
Section 151.304 and Rule 3.316 nor under Section 151.329 or Rule 3.297 relating
to exemptions for ships and ship equipment.

Your client may not accept the invalid exemption certificate in good faith.
Your client is obligated to collect and remit the Texas sales and use tax on
the sale of the tug in Texas.

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

You may call me toll free at 1-800-531-5441, ext. 3-4675. The direct line is
(512) 463-4675. You also may write to Tax Administration Division, Comptroller
of Public Accounts. My inter-net address is .

Sincerely,

Tom Soto
Tax Policy Division