Did depreciating offshore equipment make later Texas storage a taxable use, and how did the appended letter classify surveying in and outside Texas waters?

Plain-English summary

The August 30 letter addressed electronic parts bought outside Texas, assembled in Texas, used outside Texas waters, and potentially returned to Texas for storage after the job.

Under Comptroller Hearing Decision No. 24,371, depreciating the finished equipment made its Texas storage a use in Texas. State use tax and any applicable local use tax were due, with local tax determined by the storage location. The letter directed the taxpayer to file back returns and described historical penalty and interest consequences for late filing.

The same STAR record also contains a separate August 9 letter about surveying:

• surveys establishing real-property or ocean-block boundaries, locating structures relative to boundaries, pipeline right-of-way boundaries, and a rig's position relative to property lines were taxable;
• separately stated staking of a pipeline centerline was nontaxable;
• staking a new rig location was nontaxable when the boundaries already were known;
• work in Texas waters was taxable, while work outside Texas waters was not;
• the letter defined Texas waters as three marine leagues, nine nautical miles, or 10.357 land miles from shore;
• goods bought from a Texas retailer and delivered by that retailer outside Texas waters were not subject to Texas tax;
• out-of-state goods temporarily stored in Houston and then used outside Texas were not taxed, but use in Texas waters created tax; and
• a provider performing taxable surveying in Texas waters needed a Texas sales-tax permit.

The appended letter stated that Texas surveying services became taxable October 1, 1987.

Common questions

Did depreciating equipment matter? Yes; it made later Texas storage a taxable use under the cited decision.

Which location controlled local use tax? The Texas storage location.

Was pipeline centerline staking taxable? No, when separately stated.

Were surveys outside Texas waters taxable? No.

Citations and references

• Comptroller Hearing Decision No. 24,371
• 34 Tex. Admin. Code Rules 3.332, 3.335, and 3.340

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8908L0952C11

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller August 30, 1989

Dear ***:

This letter is to follow-up our telephone conversation on August
30, 1989, regarding Texas use tax on items brought into Texas for
storage. Your client buys electronic parts outside Texas, brings
the parts into Texas to be assembled, then takes the finished
product outside Texas waters for use. Once the job is complete
the equipment may come back to Texas to be stored. Based on the
enclosed Comptroller's Hearing Decision No. 24371, if the client
is depreciating the equipment, then the storage in Texas is
considered a use in Texas and state and any applicable local use
taxes are due. The applicable local use taxes are due based on
the storage location.

I have enclosed a Sales Tax Rates in Texas brochure along with
Rules 3.332, 3.335 and 3.340 for your information. Under separate
cover I have also sent you several blank sales tax returns for
you to complete showing any back taxes due. You may complete the
amount subject to tax blanks and we will determine the proper tax
rate for the filing period. Rule 3.335 will tell you if you
should file monthly or quarterly. Once we have processed the
reports you will receive a bill for the tax, penalty and interest
due.

A 5% penalty is due if a sales tax return and payment are late.
An additional 5% penalty is due if a sales tax return and payment
are 30 days late. When the report and payment are 60 days late
interest begins to accrue at 10% per annum on the unpaid tax.

This opinion is based upon 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 3-4658.

Sincerely,
Sherry Buckley
Tax Correspondence

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller August 9, 1989

Dear ***:

Thank you for your letter concerning the taxability of surveying
services for Texas sales tax purposes.

Surveying services to determine the boundaries of real property or
the blocks of ocean are taxable. Surveying services to determine
the location of structures in relation to boundaries are also
taxable.

Surveying services related to pipeline placements, rig moves and
geophysical surveys may or may not be taxable depending on what is
actually done. Right of way surveys to determine the boundaries
for a pipeline are taxable. However, staking the center line for
a pipeline is not taxable if the charge is separately stated.

A survey performed to move an oil rig is taxable if the survey is
to determine where the rig is in relation to boundaries or
property line. However, if the boundaries are already known and
the survey is done to stake out a new location for an oil rig,
then this charge is not taxable.

Surveying services performed in Texas waters (3 marine leagues, 9
nautical miles or 10.357 land miles from the shore) are subject to
Texas sales tax. Texas tax is not due on surveying services
performed outside Texas waters.

Your client is liable for Texas sales tax on supplies and
equipment purchased and obtained in Texas. If your client
purchased goods from a Texas retailer and the retailer arranges
for delivery of the goods outside Texas waters, then there will be
no Texas tax due. Your client may issue a resale certificate for
any materials transferred to their customer as part of a taxable
surveying service.

No Texas tax is due on items purchased out of Texas, shipped to
Houston for temporary storage, then taken out of Texas to be used.
Texas use tax is due on items purchased out of Texas, shipped to
Houston for storage, then taken into Texas waters for use.

If your client is performing taxable surveying services in Texas
waters, then your client must obtain a Texas sales tax permit.
Enclosed is a sales and use tax application.

Surveying services became taxable in Texas on October 1, 1987. If
your client owes Texas sales and use taxes from the date, then
they must complete the required sales and use tax returns and
submit any tax, penalty and interest due. Enclosed is a sales and
use tax return and Rule 3.335 concerning report filing
requirements. Other information concerning Texas taxes is also
enclosed.

This opinion is based upon 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 3-4658.

Sincerely,
Sherry Buckley
Tax Correspondence