Were labor, materials, and replacement parts used to repair railroad rolling stock taxable in Texas?

Plain-English summary

Charges for labor and materials used in scheduled or unscheduled maintenance of railroad locomotives and rolling stock were not taxable.

Section 151.3111 exempted repair and maintenance of tangible personal property when the property itself would be exempt because of its nature or use. Because sales and use of locomotives and rolling stock were exempt, the related service charges were exempt too.

The repairer could accept a properly completed exemption certificate from the customer and issue resale certificates to suppliers for materials incorporated into the rolling stock.

Common questions

Were rolling-stock repair labor and materials taxable? No.

What supported the exemption? The underlying locomotives and rolling stock were exempt property.

Could incorporated repair materials be bought for resale? Yes.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8908L0948B05

Original ruling text

August 8, 1989

Dear **:

Thank you for your inquiry regarding the taxability of maintenance and repairs
to railroad rolling stock.

You state that ** provides labor and materials for scheduled and
non-scheduled maintenance on railroad rolling stock. Although you stated in
our phone conversation of August 8 that ** is a division of
**, our records indicate that ** is a Texas
corporation.

In any case, the charge for labor and materials to repair or maintain railroad
rolling stock isn't taxable. Generally, charges for the repair and maintenance
of tangible personal property are taxable. However, repair and maintenance
charges are exempt if they are performed on tangible personal property that, if
sold, leased, or rented, at the time of the performance of the service, would
be exempt because of the nature of the property, its use, or a combination of
its nature and use (Texas Tax Code 151.3111). Since sales or use tax isn't due
on the sale or use of locomotives and rolling stock, repair and maintenance
charges of these items also aren't taxable. Therefore, the repairman may
accept a valid, properly completed exemption certificate in lieu of tax on the
charges for repair or maintenance.

Under these circumstances, the repairman should issue a resale certificate to
their suppliers in lieu of sales tax on materials that are incorporated into
the rolling stock being repaired.

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

If you have any questions, please contact Tax Correspondence. You may call
toll free
1-800-252-5555, or our regular number is 512/463-4600. My extension is 3-4662.

Sincerely,

Bob Jeffcoat
Tax Correspondence