Can an out-of-state seller who leases equipment in Texas get credit against Texas sales/use tax for sales tax it paid to another state on that same equipment?

Plain-English summary

This document is a short internal memo from the Texas Comptroller's Tax Administration division to Revenue Accounting, answering a question about out-of-state sellers who lease equipment in Texas.

The question: if an out-of-state seller paid sales/use tax to another state (the memo mentions California) on equipment, and that same equipment is later resold — meaning leased — in Texas, can the seller get credit against the Texas tax for the tax it already paid to the other state?

The answer is no. Under 34 Tex. Admin. Code Rule 3.338(a)(1)(A), a taxpayer can only take credit on a Texas return if it has a receipt from a Texas retailer (or other seller authorized to collect Texas sales and use tax) showing the tax paid and the selling price of the taxable items. Because tax paid to California (or any other state) isn't tax paid to a Texas seller, it doesn't satisfy that receipt requirement. The memo states plainly that the out-of-state seller "would not be allowed to apply for a refund against the Texas tax collected on the equipment for any out of state taxes paid by the seller on the same equipment."

What this means for you

Out-of-state equipment lessors doing business in Texas

If you're an out-of-state seller who paid that state's sales/use tax on equipment and then lease the same equipment to a customer in Texas, you cannot offset or get credit against the Texas tax you owe on that Texas lease by pointing to the tax you already paid elsewhere. The credit mechanism under Rule 3.338 only recognizes tax paid to a Texas-authorized seller, evidenced by a receipt.

Accountants and tax professionals

When advising multistate lessors, don't assume tax paid in the state of purchase or origin can be credited against Texas use tax owed when the property is later leased in Texas. Rule 3.338(a)(1)(A)'s receipt requirement is specific to Texas retailers/sellers authorized to collect Texas tax — out-of-state tax receipts don't qualify, and there's no refund mechanism described here for the out-of-state seller to recover that other-state tax against its Texas liability.

Common questions

Q: Can a seller get a refund of Texas tax by showing it already paid sales tax to another state on the same equipment?
A: No. The memo says the out-of-state seller "would not be allowed to apply for a refund against the Texas tax collected on the equipment for any out of state taxes paid by the seller on the same equipment."

Q: What does a taxpayer need to claim credit under Rule 3.338?
A: A receipt from a Texas retailer or other seller authorized to collect Texas sales and use tax, reflecting the tax paid and the selling price of the taxable items.

Q: Does this letter discuss what California itself requires or offers as options for handling the lease tax?
A: The subject line references "California Options on How Tax is Handled Leases," but the surviving text of the memo does not elaborate on those California-side options — it only addresses the Texas credit question.

Citations and references

Rules:

• 34 Tex. Admin. Code Rule 3.338(a)(1)(A), Allowance of Credit for Tax Paid to Suppliers

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9302L1220B02

Original ruling text

DATE: February 4, 1993

TO: Sandi Skaggs, Revenue Accounting

FROM: Russ Huerta, Tax Administration

SUBJECT: Credit for Tax Paid to Another State on Purchases of Equipment
Leased in Texas; California Options on How Tax is Handled Leases

Thank you for your question concerning out of state sellers receiving
credit for out of state tax paid on equipment that was resold (leased)
in Texas.

In Rule 3.338, Allowance of Credit for Tax Paid to Suppliers, section
(a)(l)(A) states,

Before taking credit on a return, the taxpayer must have a receipt from a
Texas retailer or other seller authorized to collect the Texas sales and
use tax. The receipt must reflect the tax paid and the selling price of
the taxable items.

The out of state seller would not be allowed to apply for a refund against
the Texas tax collected on the equipment for any out of state taxes paid
by the seller on the same equipment.

You may call me at 512/463-3690, if you have any further questions.