Texas Letter Ruling 9210L1197D11: Vessel — Component Parts — Fishing Net/Long — Line Fishing Gear — Component Of Fishing/Shrimp Boat

Subject

Vessel — Component Parts — Fishing Net/Long — Line Fishing Gear — Component Of Fishing/Shrimp Boat

Plain-English summary

The Comptroller's Tax Policy Division answered a taxpayer's questions about which parts and equipment sold for use on shrimp boats and fishing boats qualify for a sales/use tax exemption as "component parts" of the vessel.

The letter first frames the choice between two exemption rules: Rule 3.297(b)(2)(B), which exempts materials, equipment, and machinery that become component parts of a vessel that (1) leaves a Texas port to fish in the gulf and returns to the same port (so it is not an interstate commercial vessel), (2) is greater than eight tons displacement, and (3) is used exclusively for commercial purposes; and Rule 3.297(b)(4), which instead exempts materials and supplies sold to owners or operators of ships or vessels operating exclusively in foreign and interstate commerce. Based on the facts described, the Division concluded that Rule 3.297(b)(2)(B) — the component-parts rule — applied to this taxpayer's transactions.

The taxpayer's main concern was long-line fishing gear. The letter describes its components in detail: monofilament mainline, float lines, marker buoy/fish float lines, and fishing lines; big game hooks; lead swivel or bank sinker; snaps; marker buoys or fish floats; floats; and a radar reflector, battery, and strobe light mounted on an aluminum flag pole that marks the beginning, middle, and end of the gear. These pieces are assembled into a single unit (the long-line fishing gear), which attaches to the fishing vessel by a winch bolted to the deck, and the line is stored on the vessel when not in use. Because it becomes a component part of the vessel, the complete long-line fishing gear — and its individual components — can be purchased tax-free when the vessel it attaches to is over eight tons displacement and used exclusively for commercial purposes, provided the seller obtains a properly completed exemption certificate. Without that certificate, all sales of the long-line gear or its components are taxable, and the items are also taxable whenever they are sold for other (non-vessel) uses.

The letter then lists other items that qualify for the same component-parts exemption, again only with a proper exemption certificate on file:

• Fishing net; twine to repair the net
• Life preservers (stored and mounted on the vessel)
• Rigging equipment (turnbuckle, shackle, thimble, and eye swivel) that is attached to the vessel

And it lists items that are taxable and do not qualify for the exemption:

• Flare gun kit
• First aid kit
• Tools (ice shovel, meat hooks, bolt cutter)
• Shrimp dip (monosodium metabisulphite, a chemical powder used to keep shrimp from spoiling)
• Rigging equipment that is not attached to the vessel

The letter closes by noting the opinion is based on the facts presented.

What this means for you

Marine suppliers and equipment sellers

If you sell gear to owners of Texas shrimp or fishing boats, whether a sale is exempt turns on two things: whether the item actually becomes a component part physically attached to or stored as part of the vessel, and whether the vessel itself qualifies (over eight tons displacement, used exclusively for commercial purposes, based out of and returning to a Texas port). Even then, you must collect a properly completed exemption certificate — without it, the sale is taxable regardless of whether the item would otherwise qualify.

Shrimp boat and fishing boat operators

Long-line fishing gear (mainline, hooks, sinkers, buoys, floats, and the marker pole assembly), fishing nets and repair twine, stored/mounted life preservers, and rigging attached to the vessel can be bought tax-free as vessel component parts if your boat meets the size and commercial-use test and you give the seller a proper exemption certificate. Items like flare guns, first aid kits, hand tools, and shrimp dip are taxable no matter what — they don't qualify as component parts of the vessel under this ruling. Rigging that isn't attached to the vessel is also taxable.

Accountants and tax professionals

This ruling illustrates how the Comptroller distinguished Rule 3.297(b)(2)(B) (component parts of vessels engaged in intrastate/gulf commercial fishing) from Rule 3.297(b)(4) (materials and supplies for vessels in foreign/interstate commerce), and applied the former here because the boats in question left and returned to the same Texas port. It also underscores that the "component part" characterization is fact-specific and item-by-item — some pieces of otherwise-similar equipment (attached rigging vs. unattached rigging) fall on opposite sides of the exemption line based solely on whether they are physically part of the vessel.

Common questions

Q: Is all fishing equipment on a shrimp boat exempt from Texas sales tax?
A: No. Only materials, equipment, and machinery that become component parts of a qualifying vessel (over eight tons displacement, exclusively commercial, based at a Texas port) are exempt, and only with a proper exemption certificate. Equipment used on the vessel but not incorporated as a component part is taxable.

Q: Is long-line fishing gear exempt?
A: Yes, both the complete assembled long-line fishing gear and its individual components (mainline, hooks, sinkers, snaps, buoys, floats, and the radar reflector/battery/strobe light pole assembly) are exempt as component parts of a qualifying vessel, but only if the seller obtains a properly completed exemption certificate.

Q: What happens if no exemption certificate is obtained?
A: The letter states that without the proper exemption certificate, all sales of the long-line fishing gear and its individual components are subject to tax.

Q: Are tools, first aid kits, and shrimp dip exempt as vessel supplies?
A: No. The letter specifically lists flare gun kits, first aid kits, tools (ice shovel, meat hooks, bolt cutter), and shrimp dip (monosodium metabisulphite) as taxable items that do not qualify for the component-parts exemption.

Q: Does rigging equipment always qualify for the exemption?
A: Only if it is attached to the vessel. The letter distinguishes rigging equipment (turnbuckle, shackle, thimble, and eye swivel) that is attached to the vessel, which is exempt, from rigging equipment that is not attached, which is taxable.

Citations and references

This letter does not cite any Texas statutes by section number. It refers only to Texas Comptroller Rule 3.297(b)(2)(B) (component parts of certain commercial fishing/shrimp vessels) and Rule 3.297(b)(4) (materials and supplies for vessels in foreign and interstate commerce).

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9210L1197D11

Original ruling text

October 2, 1992

Dear ***:

I am writing to answer your questions regarding exemptions available for
component parts of fishing boats and shrimp boats. In addition to your
letters, we have had several telephone conversations. The response below
provides a written record of the direction given you during those
conversations.

First, I'd like to compare the exemptions found in Rule 3.297(b)(2)(B) with
those in 3.297 (b) (4). Based upon my understanding of the situations, Rule
3.297(b) (2) (B) applies to the transactions in question.

Shrimp boats and fishing boats that leave a Texas port to fish in the gulf and
return to the same port are not interstate commercial vessels. Materials,
equipment, and machinery that become component parts of these vessels are
exempted when the vessel is greater than eight tons displacement and the vessel
is exclusively used for commercial purposes. See Rule 3.297(b) (2) (B).
However, materials, equipment, and machinery that do not become component parts
of these vessels are not exempted even though used on these vessels. Materials
and supplies are exempted only when sold to owners or operators of ships or
vessels operating exclusively in foreign and interstate commerce. See Rule
3.297 (b) (4).

Based upon our conversations, you were most concerned about the taxability of
the long-line fishing gear. The components of long-line fishing gear include
monofilaments used for the mainline, float lines, marker buoy/fish float lines,
and fishing lines (lines that hold the hooks); big game hooks; lead swivel or
bank sinker; snaps; marker buoys or fish floats; floats; and the radar
reflector, battery, and strobe light that are mounted on an aluminum flag pole
to mark the beginning, intermediate, and ending points of the long-line fishing
gear. These items are assembled into one unit called the long-line fishing
gear. This line is fastened to the fishing vessel by a winch that is bolted to
the deck of the fishing vessel and the long-line stores on the vessel when not
in use.

The long-line fishing gear (described above and shown on the attached
illustration) is considered a component part of the fishing vessel and may be
purchased tax-free when the fishing vessel to which it is attached is in excess
of eight tons displacement and is exclusively used in a commercial enterprise.
You must obtain properly completed exemption certificates when selling complete
long-line gear or when selling a component of the long-line gear.

The components of the long-line fishing gear are exempted only when they are
considered components of the qualifying exempt vessel. If you do not obtain
the proper exemption certificates in lieu of tax, all sales of the long-line
fishing gear are subject to tax, as well as all sales of the individual
components of the long-line gear. These items are also taxed when they are
sold for other uses.

Other items in question that are listed below also qualify for exemption when
sold as component parts of vessels in excess of eight tons displacement and
used exclusively in commercial enterprises. The purchaser must provide the
properly completed exemption certificate in lieu of tax. Sales of these items
for other purposes are taxed.

• Fishing net; twine to repair the net
• Life preservers (stored and mounted on the vessel)
• Rigging equipment(turnbuckle, shackle, thimble, and eye wivel that are
  attached to the vessel)

The following items are taxable and do not qualify for this exemption.

• Flare gun kit
• First aid kit
• Tools (Ice shovel, meat hooks, bolt cutter)
• Shrimp Dip (monosodium metabisulphite - chemical powder to keep shrimp from
  spoilage)
• Rigging equipment that is not attached to the vessel

This opinion is based upon the facts presented.

Sincerely,

Tax Administration Division