Is renting miniature racecars and a racetrack to a customer for its employees to drive taxed the same way as operating those same racecars yourself as part of an advertising campaign?

Plain-English summary

A company ran two related lines of business involving miniature (remote control) racecars and a racetrack. In Business 1, the company rents the racecars and racetrack to a customer for a company event, and the customer's own employees and/or customers operate the cars themselves. In Business 2, the company operates the same type of remote-control cars itself, on behalf of a lessee, as part of the lessee's advertising campaign — where driving the cars is relevant to what's being advertised.

The Comptroller drew the line at who controls the cars during use. Business 1 is a taxable rental of tangible personal property: even though the company provides support at the event, the fact that the customer's employees or customers actually operate the cars means control has passed to the customer, and under Tax Code § 151.007 the total charge (including any related support services bundled in) is taxed as a rental.

Business 2 is not taxable, because the company itself retains control over the racecars the whole time — it's providing an advertising/operating service, not turning the equipment over to someone else to drive.

What this means for you

Companies renting equipment for events

If your customer's own people will operate rented equipment — even with your support staff present — expect the whole charge to be taxed as a rental, because retained-vs-transferred control (not who's physically present) drives the analysis.

Advertising and promotional companies operating equipment on a client's behalf

If you keep control of specialized equipment (like remote-control cars) and operate it yourself as part of a service you're providing — rather than letting the client's people drive it — that charge can be nontaxable, even though the same equipment could be taxable if rented out for others to operate.

Accountants and tax professionals

This is a useful "who's in the driver's seat" illustration of the broader control test for equipment rentals versus operator-provided services under Tax Code § 151.007 — the identical equipment nets different tax outcomes purely based on who operates it.

Common questions

Q: Does providing staff support at an event change a rental into a nontaxable service?
A: No. Even with the company's support present, if the customer's own employees or customers actually operate the equipment, the charge is still a taxable rental.

Q: What made Business 2 nontaxable?
A: The company itself retained control and operated the racecars — it never turned control of the equipment over to the lessee's people.

Q: Can any company with a similar two-business setup rely on this exact split?
A: Not directly. This is a Texas STAR letter ruling binding on the Comptroller only for the taxpayer it addresses (34 Tex. Admin. Code Rules 3.1, 3.10); confirm which party actually controls the equipment in your own facts.

Citations and references

Statutes:

• Tex. Tax Code § 151.007 (taxable amount for a rental, including related charges)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200012932L

Original ruling text

December 11, 2000

Dear **:

Thank you for your recent letter regarding your client's business and Texas
sales tax.

You stated that your client's business has two facets. The first involves the
rental of miniature racecars and a racetrack to your client's customer so that
their employees and/or customers may race the cars at company events (Business
1). In the second, your client operates the remote control cars on behalf of a
lessee as part of an advertising campaign of the lessee, where the operation of
the cars would be relevant to the type of business being advertised (Business
2).

The charge by Business 1 is a taxable rental of tangible personal property due
to the fact that your client's customer's employees and/or customers may
operate the cars. The fact that your client provides support does not change
the fact that control of the cars is turned over to your client's customer's
employees and/or customers. Under Texas Tax Code 151.007, the total amount for
which a taxable item is sold, leased, or rented includes all related charges
including a service that is a part of the sale.

The charge by Business 2 is not subject to Texas sales tax due to the fact that
your client retains control over the racecars.

This opinion is based on the facts presented. Additional or different facts
may yield different results.

You may call me toll free 1-800-531-5441, extension 5-9787, if you have any
questions or need more information. The direct line is 512/305-9787. You may
also write to Tax Policy Division, Comptroller of Public Accounts.

Sincerely,

Philip Knisely
Tax Policy Division