When did Texas's temporary-storage exclusion protect equipment held or assembled in Texas for out-of-state use?

Plain-English summary

Manufacturing equipment or merchandise bought from a Texas vendor was taxable even if tested, fabricated, modified, assembled, temporarily stored, and later shipped out of state.

Property bought from an out-of-state vendor could qualify for the temporary-storage exclusion when stored in Texas and either used solely outside Texas or incorporated into other property used solely outside Texas. Equipment brought into Texas for actual manufacturing use was subject to use tax even if later removed.

The business needed inbound and outbound shipping records, records showing how long each item remained in Texas and what happened to it here, and enough item-level detail to tie the records to the specific exempt property.

Common questions

Did an in-state purchase qualify merely because it was later shipped out? No.

Could an out-of-state purchase qualify? Yes, if temporarily stored and used solely outside Texas under the stated conditions.

What records were required? Detailed shipping, duration, activity, and item-identification records.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8903L0935F12

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

March 24, 1989

Dear **:

Thank you for your letter of March 13, 1989 regarding taxability of the
following transactions.

Purchased from in-state vendor:

Manufacture equipment purchased for testing, fabrication, or
modification at your Texas facility is subject to sales tax
even though the equipment will be shipped out of Texas.

Merchandise purchased for temporary storage in Texas and then
shipped out of Texas is subject to sales tax.

Merchandise purchased and shipped to your Texas location for
assembly and then shipped out of state is subject to sales tax.

Purchased from out-of-state vendor:

The manufacturing equipment brought into Texas for purposes described
above will qualify for exemption from the Texas tax if it is stored here
temporarily and (1) is used solely outside Texas; or, (2) is physically
attached to our incorporated into other tangible personal property that
is used solely outside Texas.

Certain documentation is required to be kept to substantiate this exemp-
tion in case of audit. This would include shipping records (such as
bills
of lading) showing the property coming into Texas from out-of-state,
records
of how long the property is in Texas and what happens to it while it is
here,
and shipping records showing delivery back out-of-state. These records
must
be kept in sufficient detail to tie in which specific items are covered
by
the exemption.

The equipment is subject to use tax if it is brought into Texas for use,
i.e., in manufacturing, and is then taken out of state. Please see the
enclosed Rule 3.346(b)(1) and (c).

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 our
toll-free
number 1-800-252-5555. The regular number is 512/463-4600. You may
write me
at Tax Correspondence, Comptroller of Public Accounts.

Sincerely,
Jo Ann Dieck
Tax Correspondence