Which purchases by commercial vessels were tax-exempt, and did sales to individual seamen, foreign passengers, or resellers qualify automatically?

Plain-English summary

An owner or operator of a vessel over eight tons displacement used exclusively in a commercial enterprise could buy repair or conversion materials and labor tax-free with a properly completed exemption certificate. Equipment and machinery that became vessel components also qualified.

Noncomponent items such as kitchenware, bedding, linen, tables, chairs, lubricants, and fuel did not qualify under that component rule. A vessel operated exclusively in foreign or interstate coastwise commerce could additionally exempt ship's stores loaded for its maintenance and operation.

The letter defined qualifying commerce as transporting goods or people between Texas and another state or country. Trips to offshore or high-seas fishing areas, or between two Texas points, did not qualify.

Individual seamen and foreign nationals had to pay tax on taxable items taken in Texas. A later refund was possible if the customer proved the item was imported into another country. American companies buying for resale needed a complete resale certificate.

What this means for you

Foreign registration or a maritime customer did not create a blanket exemption. The vessel's size, commercial use, route, the item's role, and a complete certificate all mattered.

Common questions

Were all supplies sold to commercial vessels exempt? No.

What additional items could a qualifying interstate or foreign vessel exempt? Ship's stores used in vessel maintenance and operation.

Were sales to seamen or foreign passengers automatically exempt? No, not when they took possession of taxable items in Texas.

Why was the certificate reviewed in the letter invalid? It did not describe the purchased items.

Citations and references

• 34 Tex. Admin. Code Rule 3.323(c) — imports and exports
• 34 Tex. Admin. Code Rule 3.285 — resale certificates

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9109L1129E01

Original ruling text

September 3, 1991

Dear **:

Thank you for your letter concerning sales to:

1. vessels dealing in foreign commerce

2. vessels registered under foreign flags

3. seamen working on either of the above vessels

4. foreign nationals that are either working or passengers on the above
   vessels

5. American companies located in Freeport purchasing items for resale to
   the above vessels.

6. shrimp boats

Our records indicate that your business activities include operation of
a jewelry store, a greeting card/gift shop and an electronics store. If
this is correct, very few of the items that you sell will qualify for
the exemptions that I will describe in the following paragraphs.

First, the owner or operator of any vessel in excess of eight tons
displacement used exclusively in a commercial enterprise (including
foreign vessels and shrimp boats) may purchase the following
items tax free with a properly-completed exemption certificate:

1. materials and labor used in repairing, renovating, or converting such
   vessels

2. materials, equipment, and machinery which become a component part of
   the vessel. This does not include items that are not components such as
   kitchenware, bedding, linen, tables, chairs, lubricants and fuel.

In addition to the items listed in #1 and #2 above, if the vessel
is operated exclusively in foreign or interstate coastwise
commerce items that are loaded on the vessel for use in the
vessel's maintenance and operation may be purchased tax free.
These items are generally known as "ship's stores" or "sea stores."

"Operating exclusively in foreign or interstate coastwise
commerce" means transporting goods or persons between a point in
Texas and a point in another state or foreign country. It does
not include trips to and from offshore areas, or fishing areas on
the high seas, or between two points in Texas.

In order to claim a valid exemption the owner or operator of the
vessel must provide this information on the exemption certificate:

• the title for position of the person issuing the certificate
• the name of the vessel on which the items will be loaded
• the foreign or interstate destination of the vessel

You must collect sales tax from an individual seaman working on
one of these vessels when the seaman takes possession of a taxable
item in Texas. You must also collect tax on sales to foreign
nationals, whether a passenger from or working on one of these
vessels. If your customer later provides proof that the item was
imported into another country, you may refund the sales tax
collected. See section (c) of Rule 3.323-Imports and Exports.

American companies buying from you for resale to one of these
vessels must issue a properly completed resale certificate in
order to make tax free purchases. Please review Rule 3.285 on
resale certificates. It will then be the other company's responsibility
to determine whether its sales to these vessels are exempt.

If the American company is purchasing for use rather than for
resale, only purchases listed under #1 and #2 on the preceding
page will qualify for exemption. For example, an American company
repairing the vessel may issue an exemption certificate in lieu of
tax on materials to be incorporated into the repaired vessel.

You asked for our comments on the exemption certificate that you
received from ******. The certificate is
incomplete and therefore is invalid. There is no description of
the items purchased, as required on a properly completed certificate.
Based on the reason given, this may have been a valid
certificate if an electronic part was purchased to repair the
ship. The certificate would not be valid for items such as jewelry.

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

Please feel free to contact me if you have any additional
questions. You may write me, call toll free 1-800-252-5555, ext.
3-4685, from anywhere in the United States or phone 512/463-4685.

Sincerely,

Julie Pesl
Tax Administration Division