A company refurbishes and remanufactures old cryogenic tanks and vessels (used by mostly out-of-state customers to store liquid oxygen, nitrogen, and argon), performing complete restoration and repair. Should it collect Texas sales tax on both in-state and out-of-state customers, and how is tax handled on the parts used in the repair?

Plain-English summary

A company that refurbishes and remanufactures old cryogenic tanks and vessels — used mainly by out-of-state customers to store or transport liquid oxygen, nitrogen, and argon — asked whether it should collect Texas sales tax on both in-state and out-of-state customers, and how tax applies to the parts used in the repair.

Note: this stub carries a STAR "ALERT" pointing to Rule 3.285 (Resale Certificates; Sales for Resale), as amended 11/01/2017 — for more current, specific guidance on the "care, custody, and control" concept central to this letter's holding. That rule reference postdates this 1999 letter by nearly two decades; it's STAR's own added pointer to where readers can find the modern version of the custody/control test discussed below, not part of the original 1999 response.

The Comptroller's original holding: refurbishing, restoring, or repairing tangible personal property belonging to another is a taxable service under Rule 3.292 (repair, remodeling, maintenance, and restoration of TPP). Sales or use tax is due on the ENTIRE charge for a Texas customer's job — materials, parts, labor, consumable supplies, equipment, and any related charges. However, sales tax is NOT due on repaired, restored, or refurbished vessels and tanks delivered to customers out of state. Separately, a Texas manufacturer may not issue an exemption certificate for vessels and tanks used to store gases — there's no manufacturing-style exemption available for this equipment.

On the parts side: parts and materials transferred to the customer as part of the repair, restoration, or refurbishment can be purchased tax-free by the repair company, using a resale certificate with its own supplier. But the repair company must itself pay sales or use tax on supplies, tools, and equipment it uses to perform the repair that are NOT transferred into the customer's care, custody, and control.

What this means for you

Repair/refurbishing businesses serving both in-state and out-of-state customers

Track delivery destination carefully: a repair job for an out-of-state customer is exempt if the finished item goes out of state, while the identical repair for a Texas customer is fully taxable on the total charge (labor + materials + equipment + supplies).

Businesses buying materials and equipment for repair jobs

Separate what actually gets transferred to the customer (buy that tax-free with a resale certificate) from your own tools/equipment/supplies consumed in performing the job (you owe tax on those yourself) — this "care, custody, and control" distinction is the crux of what's resaleable vs. what you're the consumer of.

Accountants and tax professionals

The STAR-injected 2017 pointer to Rule 3.285 signals this custody/control distinction remains current Comptroller doctrine decades later — worth checking the modern rule text directly if advising on a live repair-services engagement rather than relying solely on this 1999 letter's phrasing.

Common questions

Q: Is repairing tangible personal property belonging to a customer a taxable service in Texas?
A: Yes, under Rule 3.292, when the item belongs to another person.

Q: Is a repair job for an out-of-state customer taxable?
A: Not if the repaired item is delivered to the customer out of state.

Q: Can a manufacturer buy gas storage vessels tax-free using a manufacturing exemption certificate?
A: No — a Texas manufacturer may not issue an exemption certificate for vessels/tanks used to store gases.

Q: Can the repair company buy the parts it installs tax-free?
A: Yes, with a resale certificate, for parts and materials actually transferred to the customer as part of the job.

Q: What about tools and equipment the repair company uses but doesn't transfer to the customer?
A: The repair company itself owes sales or use tax on those.

Q: Can I rely on this letter for my own repair/refurbishing business?
A: No. This opinion is based on the facts presented, and other facts though similar may provide a different result; it can be relied on only by the taxpayer it was issued to.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.292 (repair, remodeling, maintenance, and restoration of tangible personal property)
• 34 Tex. Admin. Code Rule 3.285 (resale certificates; sales for resale) — referenced by a later STAR currency ALERT for updated care/custody/control guidance, not cited in the original 1999 letter

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9912942L

Original ruling text

ALERT: For specific guidance relating to the care, custody and control of TPP when providing a taxable service, please see Rule 3.285, Resale Certificates; Sales for Resale (amended 11/01/2017.

December 20, 1999

Dear **:

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

Your business involves the refurbishing of cryogenic tanks and vessels. These
are used primarily by your out of state customers to store or transport liquid
Oxygen, Nitrogen, Argon. Customers use these tanks as storage vessels to hold
the gases that are used in the process of their business.

Your company remanufactures the tanks (most of them are very old tanks) and
does a complete refurbishment of the tanks and vessels. You receive the tank,
look at it, test it and then give the customer and estimate of what the charges
should be.

You asked if you should tax both your in-state and out-of-state customers. You
also asked about the taxability of the parts used to repair the tanks and
vessels.

Response: Refurbishing, restoring, or repairing tangible personal property
belonging to another is a taxable service under Rule 3.292 - Repair,
Remodeling, Maintenance, and Restoration of Tangible Personal Property. Sales
or use tax is due on the entire charge for materials, parts, labor, consumable
supplies, equipment, and any charges connected to the repair, remodeling,
restoration, or maintenance service.

Sales tax is not due on repaired, restored or refurbished vessels and tanks
delivered to your customers out of state. A manufacturer in this state may not
issue an exemption certificate for vessels and tanks used to store gases

Parts and materials that are transferred to the customer as part of the repair,
restoration or refurbishment may be purchased tax free by issuing your supplier
a resale certificate. Sales or use tax must be paid by the service provider on
supplies, tools, and equipment that are purchased for use in the performance of
the repair but that are not transferred to the care, custody, and control of
the customer.

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 Policy