COMPANY B bought testing equipment from COMPANY A in Oregon, shipped it to Austin, and tested it for 4-5 days before exporting it to Singapore. Was that Texas testing a taxable 'use' even though the equipment was headed out of state?

Plain-English summary

This letter corrects an earlier (February 5, 1993) letter from the same Comptroller's office that had gotten the answer wrong on the same facts; this March 29, 1993 letter tells the taxpayer to disregard that earlier letter and gives the corrected answer.

The facts: COMPANY B bought testing equipment from COMPANY A, an out-of-state (Oregon) vendor, intending to export it to Singapore for sole and exclusive use there. COMPANY A shipped the equipment to COMPANY B in Austin, Texas on May 29, 1992. Once it arrived, COMPANY B inspected and tested it to confirm it wasn't defective and was in good working order — nothing more, no production use. The equipment then went out to Singapore from Austin on June 5, 1992, meaning it sat in Texas no more than 4 or 5 days total.

The Comptroller's answer: that brief in-Texas testing, done solely to check that the equipment worked before shipping it overseas, is itself a taxable "use" of the property in Texas. Because of that, the original purchase from COMPANY A is taxable to COMPANY B — and the letter is explicit that this holds true "regardless of whether the transaction is a use tax transaction or a sales tax transaction." Simply intending to export equipment, and actually exporting it within days, does not erase a Texas tax liability that was triggered by testing it here first.

What this means for you

Businesses importing equipment for testing before export

If you buy equipment from an out-of-state vendor, have it shipped into Texas, and test it here — even briefly, and even when the equipment is destined to leave the state for good — that testing can by itself be a taxable "use" in Texas. It doesn't matter that the equipment was in Texas for only a few days or that export was always the plan; the Comptroller's position in this letter is that testing for good working order is enough to trigger tax on the purchase.

Accountants and tax professionals

This ruling is a useful data point on how narrowly the Comptroller reads "use" in the export context: purely diagnostic testing (confirming the equipment isn't defective, no production activity) still counts, and the letter states the same result applies "regardless of whether the transaction is a use tax transaction or a sales tax transaction." Note that this letter is itself a correction of an earlier letter on the identical facts that reached a different (wrong) conclusion — a reminder that even the agency's own written answers can be revised, and that a single letter's holding shouldn't be assumed stable without checking for later guidance.

Common questions

Q: Does testing out-of-state-purchased equipment in Texas before exporting it trigger Texas tax?
A: Yes, according to this letter. The Comptroller held that COMPANY B's testing of the equipment in Austin, done solely to confirm it was in good working order before export to Singapore, was a "use" of the equipment in Texas, making the purchase from COMPANY A taxable to COMPANY B.

Q: Does it matter how short a time the equipment was in Texas?
A: Not on these facts — the equipment was in Texas no more than 4 or 5 days before being exported, and the Comptroller still found a taxable use occurred.

Q: Does it matter whether this is treated as a sales tax or a use tax transaction?
A: No. The letter states the testing "will constitute a use in Texas regardless of whether the transaction is a use tax transaction or a sales tax transaction."

Q: Can I rely on this letter for my own testing-before-export situation?
A: Only if you are the taxpayer it was issued to. The letter itself says its conclusion is "based on the facts presented" and could change on different facts, and Texas STAR letters generally can only be the basis of detrimental reliance for the taxpayer who received them directly.

Citations and references

No statutes or administrative rules are cited by section number in the original letter text.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9303230L

Original ruling text

March 29, 1993

Dear **:

I apologize for my error, but my letter of February 5th concerning equipment
purchased for export from COMPANY A is incorrect. Please disregard that letter.
This is my corrected response to your letter of January 26th.

SITUATION:

COMPANY B purchased from COMPANY A certain testing equipment for the purpose of
exporting it to Singapore for sole and exclusive use there. The equipment was
shipped from COMPANY A in Oregon to COMPANY B in Austin, Texas on May 29, 1992.
Upon receipt of the equipment from COMPANY A, COMPANY B inspected and tested
the equipment to make sure it was in good working order. The equipment was not
used in production or for any other purpose other than to determine that the
equipment was not defective. The equipment was then exported to Singapore from
Austin, Texas on June 5, 1992. The equipment was in Austin, Texas no more than
4 or 5 days prior to export.

QUESTION:

Does the testing of the equipment in Texas by COMPANY B prior to export to
Singapore constitute a use prior to export by the purchaser?

RESPONSE:

The purchase of the equipment from COMPANY A in Oregon is taxable to COMPANY B.
The testing of the equipment in Texas by COMPANY B prior to export is a "use"
in Texas. Testing by a purchaser prior to export solely to determine good
working order will constitute a use in Texas regardless of whether the
transaction is a use tax transaction or a sales tax transaction.

This opinion is based on the facts presented. If there are additiona1 or
different facts, the opinion may change.

You may call me toll free at 1-800-531-5441, ext. 5-0030. The direct line is
512/475-0030. You may also write to Tax Administration, Comptroller of Public
Accounts.

Sincerely,

David Somerville
Tax Administration Division

cc: Sandi Skaggs, Revenue Accounting
**, COMPANY A