When was Texas use tax due on foreign equipment stored in a Texas bonded warehouse before delivery to a job site?

Plain-English summary

Foreign equipment could remain in a Texas bonded warehouse for as long as a year before delivery to a job site. Although Rule 3.346 generally required reporting when taxable items were first stored, used, or consumed in Texas, bonded storage qualified for an exception.

The Comptroller said tax was not due until the equipment left the bonded warehouse for use. The letter also noted that a direct-pay permit holder could maintain tax-free inventory of out-of-state purchases with separate records when the Texas use destination was unknown at purchase.

Common questions

Was tax due when the equipment entered bonded storage? No.

When did tax become due? When the equipment was removed for use.

What separate rule applied to direct-pay permit holders? They could keep qualifying out-of-state purchases in tax-free inventory with separate records when future Texas use was uncertain.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8811L0918E05

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller November 15, 1988

Dear ****:

Recently this office responded to a ruling request you submitted
on November 1, 1988. However, our response did not address the
question of "bonded warehouse." Please accept this letter as our
amended response to your inquiry:

You stated in your letter that equipment purchased in a foreign
country will be delivered to a bonded warehouse in Texas. The
equipment may be held in the warehouse for as long as a year
before it is delivered to the job site. You asked, "Does the tax
liability accrue when the property is removed from the warehouse
and delivery completed to the site, or does it accrue at some
earlier time? If earlier, when?"

Response: Section (b)(1)(B) of Rule 3.346 Use Tax (enclosed)
states the tax should be reported in the period in which the
taxable items are first stored, used or otherwise consumed in
Texas. However, there are several exceptions to this rule. If
the items are stored in a bonded warehouse the tax would not be
due until the items are removed for use. Secondly, as previously
explained, a direct-pay permit holder may keep a tax-free inven-
tory of out-of-state purchases if separate records are maintained
and it is not known at the time of purchase whether the taxable
items will be used in Texas.

This opinion is based on the facts presented. If there are addi-
tional or different facts, the opinion may change. If you have
any questions please contact me at 1-800-252-5555, ext. 3-4439.
You may write me at Tax Correspondence, Comptroller of Public Ac-
counts.

Sincerely,
Debbie Angus
Tax Correspondence