Was a separately stated fuel charge taxable when machinery was supplied with a service, with an operator, or as a bare rental?

Plain-English summary

This STAR document contains an August 7, 1991 corrective response followed by the original July 30 letter. The correction gave three different sales-tax results for separately stated fuel used with machinery and equipment:

1. If the vendor provided a taxable service, such as landscaping or nonresidential repair and remodeling, the entire charge for the taxable service was taxable, including fuel. The fact that the fuel could also be subject to motor-fuel tax under Tax Code Chapter 153 did not change that result.
2. If the vendor supplied machinery with an operator but did not provide a taxable service, the fuel was a necessary operating expense and part of the taxable equipment-rental base even when separately stated.
3. If the vendor rented the equipment bare, without an operator, the separately stated fuel charge was not taxable; only the equipment charge was taxable.

The attached July 30 letter also answered a separate packaging question. It concluded that the portions of a manufacturer's "loadslip" that remained attached to outgoing shipping containers qualified for the exemption the letter identified under Tax Code Section 151.321.

What this means for you

Separately stating fuel did not by itself remove the charge from the sales-tax base. The decisive facts were what the vendor supplied: a taxable service, operated equipment, or bare equipment. Only the bare-rental scenario received the letter's nontaxable treatment for the separately stated fuel.

This is a 1991 letter applying statutes and classifications then in effect. Current treatment should be checked before relying on the historical result.

Common questions

Was fuel taxable when bundled into a taxable service? Yes. The total taxable-service charge included the fuel amount.

What if machinery came with an operator? The fuel was treated as an expense connected with operating the rented equipment and remained in the rental tax base.

What if the customer rented bare equipment? The separately stated fuel charge was not taxable, while the equipment rental charge was taxable.

Did motor-fuel tax make the fuel charge exempt from sales tax? No. For a taxable service, the Comptroller said possible taxation under Chapter 153 was irrelevant to the sales-tax result.

What happened to the loadslips attached to shipping containers? The July 30 letter said the portions remaining attached to outgoing containers qualified under Section 151.321.

Citations and references

• Texas Tax Code Chapter 153 — motor fuel tax.
• Texas Tax Code Section 151.308(3) — exemption provision raised in the fuel question.
• Texas Tax Code Section 151.321 — provision cited for loadslips remaining on outgoing shipping containers.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9108L1124D01

Original ruling text

August 7, 1991

Dear **** :

It has been brought to my attention that I failed to fully answer your
question in situation #2 from your letter of June 19, 1991. So that there
will be no misunderstanding, I will restate the situation, your question and
then give the complete response.

Situation #2: The taxpayer has contracted with a vendor to provide
machinery and equipment on an as needed basis (i.e. no lease or rental
agreement exist and equipment is not provided on a long-term basis). Monthly
invoice statements separately state charges for fuel used by the machinery and
equipment from the usage charges for the machinery and equipment. Such fuels
are subject to Texas Motor Fuel Tax under Texas Tax Code Chapter 153.

Question: Are the charges for fuel exempt from Texas sales and use tax
pursuant to Texas Tax Code Section 151.308(3)?

Response:I f the vendor is providing a taxable service with the
equipment, such as a landscaping service, or nonresidential repairs and
remodeling, the total charge for the taxable service would be taxable,
including the charge for fuel.The fact that the charge for fuel may also be
subject to motor fuel tax is irrelevant.

If the vendor is not providing a taxable service, but provides the
machinery with an operator, the fuel is a necessary expense the operator
incurred while operating the equipment and is part of the tax base for the
equipment rental even though the charge for fuel is separately stated.

If the vendor is renting the equipment to the taxpayer bare (without an
operator), the separate charge for fuel would not be taxable. Only the charge
for the equipment would be taxable.

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, you may call me toll
free at 1-800-252-5555, extension 3-4633. The regular number is 512/463-4633.

Sincerely,

Wanda Hutcheson
Tax Administration Division

July 30, 1991

Dear ** :

Thank you for your recent letter concerning the applicability of Texas
sales tax to the following situations.

The taxpayer is a manufacturer of tangible personal property. In order
to facilitate shipment of the manufactured property to customers, the taxpayer
creates a "loadslip." A "loadslip" is a four-part form that comes preprinted
with the product name. A loadslip does not show the customer's name or any
other shipping information.

The taxpayer tapes two parts of the loadslip to the outside of the
shipping container. Both copies remain with the container throughout the
shipping process. These loadslips help the customer identify their orders and,
if a discrepancy arises, helps the customer and the taxpayer identify any
problems.

Upon completion of the loadslip, one white copy is sent to the shipping
department. Information from that copy is entered into the taxpayer's
accounting system.

A pink copy stays with the shipping container until the warehouse ships
the product to the customer. The warehouse prepares a loading form and sends
it and the pink copy to the shipping department. The shipping department then
uses these forms to prepare a bill of lading.

After initial use, the pink and white copies, which have been sent to the
shipping department, are filed and become part of the taxpayer's permanent
records. The two white copies originally taped to the outside of the shipping
containers stay on the containers.

You asked if the portion of the loadslip that remains attached to an
outgoing shipping container would qualify for a sales tax exemption under
_151.321, Tax Code?

Response: Yes.

The taxpayer has contracted with a vendor to provide machinery and
equipment on an as needed basis (i.e. no lease or rental agreement exist and
equipment is not provided on a long-term basis) . Monthly invoice statements
separately state charges for fuel used by the machinery and equipment from the
usage charges for the machinery and equipment. Such fuels are subject to Texas
Motor Fuel Tax under Chapter 153, Tax Code.

You asked if the charges for fuel would be exempt from sales tax under
_151.308, Tax Code?

Response: If the vendor is providing the machinery with an operator and
separates the charge for the machinery, operator, and fuel, the charge for fuel
is an expense connected to the lease of the equipment and taxable. If the
vendor is renting the equipment to the taxpayer bare (without an operator), the
separate charge for fuel would not be taxable. Only the charge for the
equipment would be taxable.

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, you may call me toll
free at 1-800-252-5555, extension 3-4633. The regular number is 512/463-4633.

Sincerely,

Wanda Hutcheson
Tax Administration Division