How did Texas apply its 1984 and 1987 state tax-rate changes to a fixed written lease extending through January 1991?

Plain-English summary

The Texas Comptroller said the fixed written lease qualified for the prior-contract exemption from the state rate increase scheduled for January 1, 1987.

If the lease had been entered before October 2, 1984, it also qualified for the earlier one-eighth-percent rate-increase exemption. That earlier protection expired September 30, 1987, when collections had to reflect the four-and-one-eighth-percent rate.

The letter separately stated that the five-and-one-quarter-percent state rate effective January 1, 1987 was scheduled to revert to four and one-eighth percent on September 1, 1987.

What this means for you

The historical answer depended on the written lease date, fixed term, and separate sunset or reversion dates for two rate changes. The lease's 1991 end date did not override the statutory expiration dates.

Common questions

Did the lease qualify for the January 1987 prior-contract exemption? Yes.

What if it predated October 2, 1984? It also qualified for temporary protection from the earlier one-eighth-percent increase.

When did that earlier exemption expire? September 30, 1987.

What rate reversion did the letter state? Five and one-quarter percent back to four and one-eighth percent on September 1, 1987.

Citations and references

• The letter cited no numbered statute or Comptroller 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/8611L0779A03

Original ruling text

November 26, 1986

Dear ***:

Thank you for you recent letter which is restated with the response
below.

We have received notice of the state sales tax rate increase to 5 1/4%
effective January 1, 1987.

The property upon which the estate pays sales tax is held under a written
lease which extends to January 31, 1991, and which contains no provision
for allowing it to be changed or withdrawn because of the tax rate
increase. Our interpretation is that no additional tax will be due under
this tax increase.

Response:
Your contract will qualify for the prior contract exemption. If the
lease were entered into prior to October 2, 1984, it would also have a prior
contract exemption from the 1/8% state tax increase that occurred then.
The prior contract exemption from the 1/8% tax increase will expire on
September 30, 1987. At that time you will be required to increase your tax
rate collections to reflect the 4 1/8% rate. The rate increase, for state
tax, to 5 1/4% is set to revert back to 4 1/8% on September 1, 1987.

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. The regular number is
512/463-4600. You may write us at the Tax Administration Division.

Sincerely,

Tax Policy Section
Tax Administration Division