An out-of-state company leases equipment to customers in Texas, buying the equipment from outside Texas and delivering it to various Texas locations. After the Quill v. North Dakota decision, does this lessor still have to collect and report Texas sales and use tax?

Plain-English summary

An out-of-state company wrote to the Comptroller asking about Texas' requirements for collecting sales tax in light of the U.S. Supreme Court's decision in Quill Corp. v. North Dakota. The company leases equipment to Texas customers: it buys the equipment from outside Texas and has it delivered to various locations within the state. Its leases typically run three to five years and include a fair-market-value purchase option at the end of the term.

The Comptroller explained that, post-Quill, a company is considered to be "engaged in business" in Texas only if it maintains property, employees, agents, or independent solicitors in the state. A company that does business in Texas solely through common carriers, the U.S. mail, or by telephone is not considered engaged in business here.

Applying that standard, the Comptroller concluded that because the lessor holds title to the equipment it leases to Texas customers, it is considered to have property in Texas. That alone is enough to make it "engaged in business" in the state, so it must collect and report Texas sales and use tax on its leasing activity.

What this means for you

Out-of-state equipment lessors

If you lease equipment to Texas customers and retain title to that equipment while it sits in Texas, the Comptroller treats you as having property in the state — which is sufficient by itself to create nexus, regardless of whether you have any employees, offices, or agents physically present in Texas. Simply shipping the equipment in via common carrier or mail doesn't shield you from this, because it's the ongoing ownership of property located in Texas (not just the delivery method) that creates the obligation.

Businesses relying on common-carrier/mail-order-only presence

The letter confirms the flip side of the rule: a company whose only contact with Texas is through common carriers, the U.S. mail, or telephone communications is not engaged in business in Texas and would not have this collection obligation on that basis alone. Retaining title to in-state property is what changes the analysis for a lessor.

Accountants and tax professionals advising lessors

This letter is a useful data point on how the Comptroller applied Quill's physical-presence nexus standard to a leasing fact pattern specifically: title to leased property physically located in Texas equals "property in this state," which is one of Quill's enumerated triggers (property, employees, agents, or independent solicitors) for engaged-in-business status.

Common questions

Q: Does an out-of-state company automatically have Texas nexus just because its leased equipment ends up in Texas?
A: According to this letter, yes — if the lessor retains title to the equipment while it is in Texas, that is treated as having property in the state, which makes the company engaged in business in Texas.

Q: What did Quill v. North Dakota change about who has to collect Texas sales tax?
A: Per this letter, after Quill, a company is engaged in business in Texas only if it maintains property, employees, agents, or independent solicitors in the state; conducting business only through common carriers, the U.S. mail, or telephone does not create that obligation.

Q: Would this lessor avoid the collection obligation if it just shipped equipment to Texas without retaining title?
A: The letter doesn't address that scenario directly — it addresses a lessor that does retain title. The stated basis for the ruling is that holding title to equipment located in Texas is having "property in this state."

Q: Does the length of the lease term or the end-of-lease purchase option affect the nexus conclusion?
A: The letter recites those facts (three-to-five-year leases with a fair market value purchase option) as background but bases its holding specifically on the lessor's retained title to the equipment, not on the lease term or purchase option.

Q: Can another out-of-state lessor rely on this letter for its own situation?
A: No. This opinion is based on the facts presented, and the letter itself notes that other facts, though similar, may produce a different result. Texas STAR letters may be relied upon only by the taxpayer to whom they were issued.

Citations and references

No Texas statutes or administrative rules were cited by section number in this letter. The letter discusses the U.S. Supreme Court decision in Quill Corp. v. North Dakota as the basis for the "engaged in business" standard it applies.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9207L1191A13

Original ruling text

July 17, 1992

Dear ***:

Thank you for your letter regarding Texas' requirements for collecting sales
tax in light of the Supreme Court decision in Quill vs. State of North Dakota.

Your company leases equipment in Texas. The equipment is purchased from
outside Texas and subsequently delivered to various locations in Texas. The
leases typically run from three to five years and carry a fair market purchase
option at the end of the lease term.

As a result of the recent Supreme Court decision, a company will be considered
to be engaged in business in Texas only if the company maintains property,
employees, agents, or independent solicitors in Texas. A company conducting
business in this state only through common carriers, the U.S. mail, or by
telephone will not be considered to be engaged in business in Texas.

Since your company has title to the equipment it leases in Texas, it is
considered to have property in this state and thus still is engaged in business
in this state for purposes of collecting and reporting sales and use tax.

This opinion is based on the facts presented. Other facts though similar may
provide a different result.

If you have other questions or need more information, you may call me at
1-800-252-5555, extension 3-4502. The regular number is 512/463-4600. You may
also write to Tax Administration Division at the above address.

Sincerely,

Gilbert Zamora
Tax Administration Division