Did an out-of-state lessor with equipment in Texas have to collect tax despite having no Texas office or representative?

Plain-English summary

The Illinois corporation had no Texas offices or representatives but leased equipment to Texas companies. Before the law change, if it had no Texas representation under Rule 3.286, it did not have to collect sales or use tax. The equipment in Texas was still subject to use tax, and customers were to be told of that obligation.

Effective October 1, 1987, Section 151.107 treated a retailer earning rentals from tangible personal property situated in Texas as engaged in business in the state. From that date, the lessor had to collect and remit tax on leases of its Texas-situated equipment.

What this means for you

The historical law change made the in-state leased property itself sufficient for the collection duty described, even without an office or representative. Before that change, the customer's use-tax liability remained even when the lessor did not collect.

Common questions

Did the lessor initially have to collect tax? Not if it had no Texas representation under Rule 3.286.

Was the Texas equipment tax-free before then? No. The customers owed Texas use tax.

What changed October 1, 1987? Texas-situated leased property made the lessor a retailer engaged in business in Texas under Section 151.107.

Citations and references

• Texas Tax Code § 151.107, Texas retailer status from rentals of in-state tangible property
• Texas Comptroller Rule 3.286, Texas representation referenced by the 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/8709L0831G05

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

September 11, 1987

Dear ***:

Thank you for your recent letter regarding your tax responsibility. You
stated that you are an Illinois Corporation with no offices or repre-
sentatives in Texas. You lease various equipment to companies based in
Texas.

If you have no representation in Texas as outlined in Rule 3.286,
enclosed,
you are not required to collect the sales or use tax. However, the
equipment
leased to your customers in Texas is subject to Texas use tax and your
customers should be so advised.

Effective October 1, 1987, a retailer who derives rentals from a lease of
tangible personal property situated in Texas will be considered a
retailer
engaged in business in Texas according to section 151.107 of the Tax
Code.
Therefore, effective October 1, 1987, you will be required to collect and
remit tax on the lease of equipment situated in Texas.

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 me at
1-800-252-5555 toll free from anywhere in Texas. The regular number is
512/463-4600- You may write me at the Tax Policy Division.

Sincerely,
Jo Ann Dieck
Tax Policy Division