Are fenders used by a lightering workboat to protect tankers during a lightering operation exempt from Texas sales tax as a component part of the vessel, even though the fenders are not physically attached to the boat?

Subject

Lightering Workboat Fenders Are a Component Part of the Vessel and Exempt From Sales Tax

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9306L1240G11

Plain-English Summary

A taxpayer operating lightering workboats in the Gulf of Mexico wrote to the Comptroller asking whether the purchase of large fenders used in the lightering operation was exempt from Texas sales tax as a component part of the vessel.

Lightering is the process of transferring cargo between vessels at sea. The taxpayer's workboats carry "Yokohama Fenders" out to the lightering area, string them alongside a tanker, and moor the tankers together for the lightering operation. The fenders keep the tankers from rubbing against each other during the operation. When not in use, the fenders are stored either on the lightering boat or on the dock in Sabine Pass, and their sole purpose is lightering tankers in the Gulf of Mexico.

The taxpayer noted that the fenders are not physically attached to the workboat, so it wasn't clear whether they would count as a "component part" of the vessel for exemption purposes. The taxpayer argued that the workboat could not perform its designed function — lightering — without the fenders, and that the fenders likewise have no independent use apart from the workboat that carries, strings, and recovers them.

The Comptroller agreed. The response states that the fenders are an integral part of the workboat and will be treated as a component part of the vessel even though they are not physically attached. The ruling conditions the exemption on vessel size: if each workboat together with its fenders exceeds eight tons displacement, the fenders qualify for exemption from sales tax because they are used in a commercial enterprise.

What This Means For You

If you purchase equipment used with, but not attached to, a commercial vessel

This ruling shows that Texas will treat unattached equipment as a "component part" of a vessel for sales tax exemption purposes when the equipment and the vessel are functionally interdependent — here, the workboat could not perform its designed lightering function without the fenders, and the fenders had no separate use away from the workboat.

If you operate lightering or similar marine service vessels

The exemption discussed in this letter depends on the vessel (with its fenders) exceeding eight tons displacement and being used in a commercial enterprise. Smaller vessels, or equipment used in a non-commercial context, may not qualify on the same reasoning.

If you are relying on this letter for your own transaction

This is a taxpayer-specific letter ruling from 1993. Under 34 Tex. Admin. Code Rules 3.1 and 3.10, only the taxpayer who received this letter can rely on it as a detrimental-reliance defense; other taxpayers should confirm current Comptroller policy before relying on its reasoning, since STAR documents can become outdated even without being marked superseded.

Q&A

Q: Did the Comptroller allow the sales tax exemption for the fenders?
A: Yes. The response states the fenders are an integral part of the workboat and will be considered a component part of the vessel even though they are not physically attached.

Q: Does it matter that the fenders are not physically attached to the workboat?
A: No. The Comptroller specifically found the fenders qualify as a component part "even though they are not physically attached," based on the functional interdependence between the workboat and the fenders.

Q: Is there a size requirement for the exemption to apply?
A: Yes. The ruling states that if each workboat with its fenders is in excess of eight tons displacement, the fenders will qualify for exemption from sales tax since they are used in a commercial enterprise.

Q: What are the fenders used for?
A: The fenders, called Yokohama Fenders, are strung alongside a tanker during lightering operations in the Gulf of Mexico so that two tankers can be moored together without rubbing against each other.

Q: Where are the fenders kept when not in use?
A: The letter states the fenders are stored either on the lightering boat or on the dock in Sabine Pass, and their sole purpose is to lighter tankers in the Gulf of Mexico.

Q: Can other taxpayers rely on this specific letter for their own purchases?
A: Only the taxpayer who received it can use it as a detrimental-reliance defense, per 34 Tex. Admin. Code Rules 3.1 and 3.10; the ruling itself also notes it is based on the specific facts submitted and other facts, though similar, may yield different results.

Original ruling text

June 4, 1993

Dear **:

Thank you for your recent letter which is restated in part with response below.

We currently operate lightering workboats in the Gulf of Mexico. Purchases for
the workboats if component parts of the vessel are exempt from Texas sales
taxes.

In order to lighter tankers in the Gulf of Mexico, the Lightering workboat
carries out to the lightering area fenders which are strung alongside one of
the tankers and the tankers are then moored together for the lightering
operation. The fenders, known as Yokohama Fenders, protect the tankers from
rubbing against each other. The fenders are stored either on the lightering
boat or on the dock in Sabine Pass. Their sole purpose is to lighter tankers
in the Gulf of Mexico.

The fenders are not a component part of the lightering workboat. However, the
lightering workboat would not be a lightering boat without the fenders as it
could not perform its' designed function. The fenders without the workboat
could not be used in the lightering operation as the lightering workboat is
designed to carry the fenders to the lightering area, string the fenders on
the tanker, wait for the lightering to be completed and then recover the
fenders.

Please review the above and advise if the purchase of the fenders is exempt
from sales tax.

Response: The fenders are an integral part of the work boat and will be
considered to be a component part of the vessel even though they are not
physically attached. If each workboat with its fenders is in excess of eight
tons displacement, the fenders will qualify for exemption from sales tax
since they are used in a commercial enterprise..

This opinion is rendered based on the facts you submitted. Other facts,
though similar, may yield different results.

If you have questions or need more information, please call or write. You
may reach me by calling toll free, (800) 531-5441 (ext.34680). My direct
line number is (512) 463-4680. The number for FAX transmissions is (512)
475-0900. You may write to me in care of Tax Administration Division.

Sincerely,

Al Van Allen
Tax Administration Division

NOTE: Previous Accession Number 93070046.4 and/or 9307046L