If a roofing contractor rents equipment to perform installation work under a contract with a Texas school district, is that equipment rental exempt from sales/use tax?

Plain-English summary

A contractor that manufactures and installs standing seam metal roofs, holding contracts with several Texas school districts, asked the Comptroller about the current rules on sales/use tax for equipment it rents to perform that installation work.

The Comptroller's answer was direct: machinery and equipment used by a contractor on a school district contract is not exempt. The contractor owes tax on the purchase, lease, or rental of machinery, equipment, and repair/replacement parts and accessories for equipment used on all of its jobs — including jobs performed under contracts with exempt entities like a school district. This treatment reflects a change in the law that took effect October 1, 1993: even though the school district itself is a tax-exempt entity, that exemption doesn't extend to the contractor's own equipment used to do the work.

What this means for you

Contractors working with schools, government entities, and other exempt organizations

Don't assume that working under a tax-exempt entity's contract makes your own equipment purchases, rentals, or leases exempt — since October 1, 1993, Texas law has drawn a firm line: the exempt entity's status doesn't flow through to the contractor's machinery/equipment. This applies broadly (not just to roofing contractors) and is consistent with the recurring principle in other 1999 letters that equipment rentals are taxed as TPP purchases, not as part of an exempt construction service.

Accountants and tax professionals

This letter is a concise, dated confirmation (citing the October 1, 1993 effective date) of the equipment-vs-exempt-entity-contract rule that appears repeatedly across this era's STAR letters — useful as a standalone citation point distinct from the labor/materials exemption analysis that typically applies to the construction portion of an exempt-entity job.

Common questions

Q: If I'm doing construction work for a tax-exempt school district, is my rented equipment also tax-exempt?
A: No — machinery, equipment, and related repair/replacement parts and accessories used by a contractor remain taxable on all jobs, even those performed for exempt entities like school districts.

Q: When did this rule take effect?
A: October 1, 1993.

Q: Does this rule apply only to roofing contractors?
A: No — the letter frames it as a general rule for contractors' machinery and equipment used "on all jobs, including contracts with exempt entities," not a rule limited to any one trade.

Citations and references

No specific Tax Code section or Comptroller rule number is quoted in this letter, though it references a statutory/rule change effective October 1, 1993.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9910756L

Original ruling text

October 7, 1999

Dear **:

This is in response to your request for a ruling on the following fact
situation and questions:

We are a contractor involved in the manufacturing and installation of standing
seam metal roofs. We currently hold a number of contracts with assorted Texas
school districts

Please advise on the current rules regarding payment of sales/use tax on rented
equipment used in the performance of these contracts.

Response: Machinery and equipment used by a contractor on a contract with a
school district entity are not exempted. The contractor owes tax on the
purchase, lease or rental of machinery, equipment, repair and replacement parts
and accessories for the machinery or equipment used on all jobs, including
contracts with exempt entities. This change in the law was effective October 1,
1993.

This opinion is based on the facts presented. Other facts though similar may
provide a different result.

I hope this information answers your questions. If you need additional
information, please call me toll-free at 1-800-531-5441, extension 3-4502. The
direct line is 512/463-4502. You may also write to Tax Policy Division,
Comptroller of Public Accounts. You may also e-mail our tax help section at:

Sincerely,

Gilbert Zamora
Tax Policy