A company repairs and restores motor vehicles/trucks that it owns and holds for rental, using gas and electricity in the process. Is that gas and electricity exempt from tax the way it would be for a manufacturer, or is it taxable because it's being used on the company's own rental property rather than in manufacturing property for sale?

Plain-English summary

A taxpayer asked the Comptroller's office to review its policy on using gas and electricity to repair or restore rental equipment back to its original condition. Under the Comptroller's existing rule at the time, gas and electricity used to repair or restore rental property was not exempt. But similar wording in the separate manufacturing rule had already been examined in a 1990 hearing decision, H-24,809, and an Administrative Law Judge found that reading incorrect — concluding that the manufacturing exemption for gas and electricity was available to a person repairing property that person owned and held for rental. It did not apply to property being repaired for someone else.

After reviewing the rules and that hearing decision, the Comptroller's office concluded that a person who owns property and holds it for rental may claim the gas-and-electricity exemption if the gas or electricity is used directly in the repair or restoration operation. The letter is careful to flag that this creates fact questions it does not resolve — for example, electricity used to wash and vacuum a vehicle is not processing/repair, but ordinary taxable maintenance. The Comptroller also stated an intent to amend Rule 3.295 (Natural Gas and Electricity) so that repairing property belonging to another person, by restoring it to its original condition, is not considered "processing" of that property.

What this means for you

Rental companies (vehicles, equipment, or similar rental fleets)

If you own the property you rent out and you use gas or electricity to actually repair or restore that property (engine work, painting, body work, and similar restoration to original condition), that gas and electricity can qualify for the exemption — as long as it's used directly in the repair operation itself, not just general upkeep.

Repair shops that service other people's property

The exemption in this letter is tied to repairing property you own and hold for rental. If you're repairing property that belongs to someone else (a customer's vehicle, for instance), this exemption does not apply — the letter and the planned rule amendment both draw that line explicitly.

Distinguishing repair from maintenance

Not every use of gas or electricity around a rental vehicle or piece of equipment counts. The letter gives a concrete example: washing and vacuuming a vehicle is taxable maintenance, not exempt processing/repair. Businesses should be prepared to separate electricity used directly in repair/restoration work from electricity used for routine cleaning, refueling, or general upkeep, since only the former was described as potentially exempt.

Accountants and tax professionals

This letter reflects a policy shift driven by a hearing decision (H-24,809 (1990)) rather than a statute, and it explicitly contemplates a rule amendment to Comptroller's Rule 3.295. Because it predates that amendment and is now decades old, confirm current Rule 3.295 language and any more recent guidance before relying on this reasoning for a client.

Common questions

Q: Is gas and electricity used to repair a truck a company owns and rents out exempt from Texas tax?
A: According to this letter, yes — if the gas or electricity is used directly in repairing or restoring the property (which the company owns and holds for rental) to its original condition.

Q: Does the exemption apply if the company is repairing a customer's vehicle instead of its own rental property?
A: No. The letter states the manufacturing-type exemption did not apply to property repaired for others — only to property the person owns and holds for rental.

Q: Is electricity used to wash and vacuum a rental vehicle exempt?
A: No. The letter specifically identifies washing and vacuuming as taxable maintenance, not exempt processing/repair.

Q: What rule was the Comptroller planning to amend based on this policy?
A: Comptroller's Rule 3.295 on Natural Gas and Electricity, to state that repairing property belonging to another by restoring it to its original condition is not considered "processing" of that property.

Q: What hearing decision drove this change in policy?
A: H-24,809 (1990), in which an Administrative Law Judge concluded the manufacturing exemption was available to persons repairing property they owned and held for rental.

Q: Can another taxpayer rely on this specific letter for their own repair operations?
A: No. Texas STAR letters can be the basis of a detrimental reliance claim only for the taxpayer to whom the letter was directly issued, and this letter itself notes that fact questions about what counts as "direct" use in repair are left unresolved.

Citations and references

• H-24,809 (1990) — Comptroller hearing decision holding that the manufacturing exemption for gas and electricity is available to persons repairing property they own and hold for rental (but not property repaired for others).
• Comptroller's Rule 3.295 (Natural Gas and Electricity) — the rule the letter states will be amended to clarify that repair of another's property, by restoring it to original condition, is not "processing."

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9206L1176G11

Original ruling text

June 18, 1992

Dear **:

You asked that I review our policy concerning the use of gas and electricity to
repair or restore rental equipment to its original condition. Under our
existing rule, gas and electricity used to repair or restore rental property is
not exempt. However, similar language in the manufacturing rule was examined in
H-24,809 (1990) and found to be incorrect. The Administrative Law Judge
concluded that the manufacturing exemption was available to persons repairing
property which they owned and held for rental. It did not apply to property
repaired for others.

After reviewing the rules and hearings decisions, I have concluded that persons
repairing property they own and hold for resale may claim the exemption for gas
and electricity if the gas or electricity is used directly in the repair or
restoration operation. Naturally, fact questions, which this letter does not
address, may arise as to when the electricity or gas is used directly in the
repair or restoration of the property. For instance, electricity used to wash
and vacuum a vehicle would not be considered processing but taxable
maintenance.

I intend to ask that the definition of processing contained in Comptroller's
Rule 3.295 on Natural Gas and Electricity be amended to read as follows:

. . . The repair of tangible personal property belonging to another. by
restoring it to its original condition is not considered processing of that
property . . . .

I hope this satisfactorily resolves your problem.

Sincerely,

Wade Anderson
Assistant Director of Tax Administration