Were data-processing leases and sales to the U.S. Government taxable, and did an out-of-state seller need a Texas permit?

Plain-English summary

The proposed data-processing-equipment lease to the U.S. Government was not taxable. The letter said the federal government could rent, lease, or purchase tangible personal property for its own use without paying tax, even though independent Texas contractors would maintain the equipment and the leases included likely purchase options.

The Virginia-based company also expected occasional Texas sales, with orders approved only at its Virginia office, no salespeople entering Texas, and equipment shipped directly from manufacturers to purchasers. On those facts, it did not have to hold a Texas sales-and-use-tax permit or collect Texas tax because it had no representation in Texas.

The U.S. Government owed no use tax on its purchases. For other purchasers, the letter said the purchaser should remit use tax to the State Comptroller's Office.

Common questions

Did a purchase option make the federal lease taxable? No under the stated facts. Why did the seller avoid a Texas permit? Orders were approved out of state, it had no Texas salespeople or other representation, and goods were direct-shipped. Were nonfederal purchases tax free? No; the purchaser was to remit use tax.

Citations and references

The reproduced letter cites no numbered statute or rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8502L0630B01

Original ruling text

February 22, 1985

Dear ***:

Thank you for your letter of February 14, 1985, concerning the taxability
of equipment leased to the U. S. Government and others.

Your fact situations and response follows:

Our client proposes to purchase data processing equipment and to lease
this equipment to the U. S. Government for use in their facilities located
within your State. Maintenance for this equipment will be provided by
independent contractors located within your State. These proposed leases will
provide, among other terms, a purchase option, which will probably be exercised
in many instances.

Response: This is not a taxable transaction. The Federal Government may
rent, lease or purchase tangible personal property for their own use without
paying tax.

In addition to lease transactions, our client also expects to sell, only
in isolated instances, data processing systems within your State to the U. S.
Government and others. Orders for these systems will be accepted for approval
only at the company's main office located in Virginia. The company will not
have any salesperson(s) entering your state for these orders. The purchased
equipment will be shipped directly from the manufacturers to the purchaser.

Response: Your client is not required to hold a Texas Sales and Use Tax
permit, nor collect our tax since they have no representation in Texas. The U.
S. Government does not owe Use tax on their purchases, however, Use tax should
be remitted to the State Comptroller's Office by the purchaser.

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

If you have any questions or need more information, please call us at
1-800-252-5555 toll free from anywhere in Texas. You may write us at the Tax
Administration Division.

Sincerely,

Tax Policy Section
Tax Administration Division