Was equipment temporarily assembled in Texas before shipment for use solely in Oklahoma subject to Texas sales or use tax?

Plain-English summary

A company planned to bring equipment to a Texas location for further assembly and fabrication, then ship it to Oklahoma for use solely there. The equipment would have no other Texas use.

If the equipment arrived from outside Texas, its temporary presence was not taxable "use" or "storage" when retained for later out-of-state use or for processing, fabrication, manufacturing, attachment, or incorporation into property that would be transported and used solely outside Texas. The letter relied on Texas Tax Code Section 151.011(f)(2) and Rule 3.346(c).

No fixed number of days defined "temporary." The Comptroller described it as a delay or interruption necessary and essential to the Texas fabrication, processing, or assembly before out-of-state delivery. Business records had to support the exclusion and show no other taxable Texas use; when those conditions applied, the company could issue an exemption certificate.

The result changed if the equipment was shipped from a point inside Texas. The use-tax exclusion did not apply to a transaction subject to Texas sales tax, so the described in-state sale was taxable.

What this means for you

The equipment's shipping origin and documented Texas activity were decisive. The temporary-storage exclusion covered qualifying out-of-state property passing through necessary Texas fabrication, not an otherwise taxable Texas sale.

Common questions

Was there a fixed maximum storage period? No.

What made the Texas delay temporary? It had to be necessary and essential to fabrication, processing, or assembly for out-of-state delivery.

What records were needed? Business records showing the property was not put to taxable use in Texas and supporting the temporary delay.

Could the purchaser issue an exemption certificate? Yes, if the stated use-tax exclusion applied.

What if the equipment came from within Texas? Texas sales tax was due on the described transaction.

Citations and references

• Texas Tax Code § 151.011(f)(2) — temporary-storage and processing exclusion from taxable use
• 34 Tex. Admin. Code Rule 3.346(c) — corresponding rule cited by the Comptroller

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9105L1109F06

Original ruling text

May 23, 1991

Dear **:

Thank you for your recent letter. As I understand it, your
company is purchasing several pieces of equipment that will be shipped to your
location in *, Texas. There, the equipment will be further assembled and
fabricated. After that, the equipment will be shipped to, and put to use at,
***, Oklahoma. The equipment will not be used in Texas, other than as
described. You ask if any Texas sales or use tax is due on this equipment.

The answer depends on whether the equipment is being shipped
to you in * from outside or inside Texas.

If the equipment is shipped to you from outside Texas, it
would ordinarily be shipped to Texas use tax. However, the temporary location
of the equipment in Texas will not be considered a taxable "use" or "storage"
of the property if it is retained for the purpose of subsequently transporting
it outside Texas for use solely outside Texas, or for the purpose of
processing, fabricating, or manufacturing the equipment into other property or
attaching the equipment to or incorporating the equipment into other property
to be transported outside the state for use solely outside the state. Tax Code
Sec. 151.011 (f)(2), Rule 3.346 (c) (copies enclosed).

There is no set length of time in the statute or the rules
that defines "temporary" in this context. For our purposes, "temporary" means
a temporary delay or interruption necessary and essential to the further
fabrication, processing or assembling of the property within Texas for delivery
out-of-state. Business records should support such a position.

If this applies to your situation, you may issue an exemption
certificate to the supplier instead of paying Texas use tax. Your business
records should clearly reflect the fact that the property was not put to a
taxable use in Texas.

If the equipment will be put to a use in Texas other than
those described above, and no other exemption applies, then Texas use tax will
be due. Oklahoma may allow credit against Oklahoma tax for Texas tax that you
were required to pay on the equipment. You should check with the Oklahoma Tax
Commission for further information on Oklahoma tax.

The described exclusion from the definition of a taxable use
does not apply, however, to sales that would be subject to the sales tax,
rather than the use tax. Therefore, if the equipment is shipped to you in
** from a point inside Texas, then Texas sales tax is due on the
transaction you describe. Once again, you may wish to check with the Oklahoma
Tax Commission to see if you are entitled to any credit for tax paid to Texas.

This opinion is based on the facts presented. Different
facts, though similar, might lead to different answers. If you have further
questions, feel free to write or call me at 1-800-252-5555, ext. 3-3889.

Sincerely,

John Christian
Attorney
Tax Administration