Were film libraries leased by subscription taxable in Texas, including when used by a federal contractor?

Plain-English summary

Based on the information supplied, the Texas Comptroller treated film libraries leased to customers by subscription as tangible personal property rather than a nontaxable service. Sales or use tax was therefore due on the lease or rental.

The letter also distinguished the federal government from its contractors. The federal government was exempt, and items actually sold or leased to it qualified for exemption. A federal contractor, however, was not exempt for items the contractor used or consumed to perform its federal contract.

The author could not reach the requester for more information, so the conclusion was expressly based on the limited facts in the letter.

What this means for you

A subscription label did not turn a rental of physical property into a service. The identity of the actual purchaser or lessee also mattered: direct federal-government transactions received different treatment from a contractor's own purchases or rentals.

Common questions

Were subscription-based film-library rentals taxable? Yes, on the facts provided. They appeared to be leases of tangible personal property.

Was the federal government exempt? Yes.

Was a federal contractor automatically exempt? No. Items used or consumed by the contractor to perform a federal contract were taxable to the contractor.

What if the property was actually sold or leased to the federal government? The letter says those items qualified for exemption.

Citations and references

• Comptroller Rule 3.294 — Rental and Lease of Taxable Items.
• Comptroller Rule 3.322 — Exempt Entities.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8705L0818G13

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller May 22, 1987

Dear ***:

Thank you for your letter of April 15, 1987, concerning the taxability of
film
libraries which you lease to customers on a subscription basis.

I was unable to contact you by telephone in order to obtain additional
information about your product. Based on the information given in your
letter, it appears that you are leasing tangible personal property rather
than
providing a nontaxable service. Sales or use tax is due on the lease or
rental of tangible property.

The federal government is exempt from payment of the sales tax. Federal
government contractors, however, are not exempt from the tax. Only those
items actually sold or leased to the federal government qualify for
exemption.
Items used or consumed by the contractor to perform a federal contract
are
taxable to the contractor.

Rule 3.294 - Rental and Lease of Taxable Items and Rule 3.322 - Exempt
Entities are enclosed for your reference.

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

Please feel free to contact me if you have additional questions. You
may
write me, call toll free 1-800-252-5555 from anywhere in Texas or phone
512/463-4600.

Sincerely,
Julie Pesl
Tax Policy Section
Tax Administration Division