Can the Comptroller exempt interstate trucking companies from sales and use tax on repair parts and tires, or let them apportion the tax based on Texas miles versus total miles?

Subject

Tires — Purchased In Texas By Motor Carrier For Out-of-State Use

Plain-English summary

An interstate trucking company asked the Comptroller to rule that the Texas sales tax on repair parts and tires purchased by interstate trucking companies is unconstitutional, arguing it unfairly discriminates against trucking companies. The taxpayer wanted either a full exemption from sales and use tax on repair parts and tires, or, alternatively, the ability to apportion the Texas use tax based on the ratio of miles traveled in Texas to total miles traveled in all states.

The Comptroller's Tax Policy Division (responding on behalf of Comptroller John Sharp) declined to address the constitutional question directly, explaining that administrative agencies are not authorized to rule on the constitutionality of the statutes they administer -- citing Texas State Board of Pharmacy v. Walgreen Texas Company -- and that the courts are the proper forum for constitutional issues.

Instead, the letter laid out the exemptions and credits that already exist in the sales and use tax law that can apply to interstate carriers:

• Repair parts for certificated/licensed aircraft carriers (Tax Code 151.328), vessels of eight or more tons used commercially (Section 151.329), and locomotives/trains (Section 151.331) are exempt.
• Tax Code 151.330(h) exempts sales of tangible personal property to a common carrier if the property is shipped outside Texas using the carrier's own facilities under a bill of lading for use outside the state.
• Section 151.330(i) exempts the storage or use of tangible personal property acquired outside Texas for use as a repair part affixed in Texas to a self-propelled vehicle used as a licensed and certificated common carrier.
• There is no general apportionment provision in the Texas sales tax law, but Section 151.303 gives a taxpayer credit against Texas use tax for any similar tax legally due and paid to another state.

What this means for you

Interstate trucking companies

There is no blanket sales or use tax exemption for repair parts and tires bought for your fleet, and Texas does not let you apportion tax based on the share of miles driven in Texas versus other states. However, if you buy the property and ship it outside Texas yourself under a bill of lading for use outside the state, or if you acquire a repair part outside Texas and simply have it installed here, specific exemptions under Section 151.330(h) and (i) may apply. Where you've already paid a similar tax to another state, Section 151.303 lets you claim a credit against Texas use tax rather than paying twice.

Business owners and fleet operators raising constitutional/fairness objections to Texas tax law

The Comptroller's office will not rule on whether a tax statute is unconstitutional -- it says administrative agencies aren't authorized to decide that, and the courts are the only proper forum for that kind of challenge. If you believe a tax provision is unfair or unconstitutional as applied to your business, you'll need to pursue that argument in court, not through a Comptroller ruling request.

Accountants and tax professionals advising carriers

When a client asks about reducing sales/use tax on repair parts and tires through an apportionment or discrimination argument, know that the Comptroller has already addressed this fact pattern: no apportionment exists in the statute, and the available relief is limited to the specific common-carrier exemptions (151.328, 151.329, 151.330(h)-(i), 151.331) and the multistate tax credit in Section 151.303.

Common questions

Q: Did the Comptroller rule that the sales tax on trucking repair parts and tires is unconstitutional?
A: No. The letter states that administrative agencies are not authorized to rule on the constitutionality of the statutes they administer, and that the courts are the proper forum for constitutional issues.

Q: Can an interstate trucking company apportion Texas sales/use tax based on the percentage of miles driven in Texas?
A: No. The letter states the Texas sales tax law makes no provision for apportionment of tax on tangible personal property.

Q: Is there any relief if a trucking company already paid a similar tax to another state?
A: Yes. Section 151.303 entitles a taxpayer to a credit against the Texas use tax for any similar tax legally due and paid to another state.

Q: Are there existing exemptions that could help a common carrier avoid tax on parts or tires?
A: Yes, in specific circumstances. Tax Code 151.330(h) exempts property sold to a common carrier that is shipped outside Texas under a bill of lading for use outside the state, and Section 151.330(i) exempts property acquired outside Texas and affixed here as a repair part on a licensed and certificated common carrier vehicle. Separate exemptions also exist for aircraft, vessel, and railroad repair parts/supplies (Sections 151.328, 151.329, 151.331), though those are for different modes of transport, not trucking generally.

Citations and references

Statutes and case law cited in the letter:

• Tax Code 151.328 (aircraft carrier repair parts)
• Section 151.329 (vessel repair parts, eight+ tons)
• Section 151.331 (locomotive/train supplies)
• Tax Code 151.330(h) (common carrier property shipped outside Texas under bill of lading)
• Section 151.330(i) (out-of-state-acquired repair parts affixed in Texas to a common carrier vehicle)
• Section 151.303 (use tax credit for similar tax paid to another state)
• Texas State Board of Pharmacy v. Walgreen Texas Company, 520 S.W.2d 845, 848 (Tex. Civ. App., Austin -1975, writ ref'd n.r.e.)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9609L1430D07

Original ruling text

September 30, 1996

Dear *****:

Mr. Sharp has asked me to respond to your letter
asking for a ruling on the constitutionality of the sales tax on repair parts
and tires purchased by interstate trucking companies. You believe that the law
as written unfairly discriminates against trucking companies and that
interstate trucking companies should be exempt from all sales and use taxes on
repair parts and tires. In the alternative, you believe that trucking
companies should be allowed to apportion Texas sales and use tax based on miles
traveled in Texas compared to total miles traveled in all states.

As you pointed out, the Texas sales and use tax law
exempts repair parts for aircraft used as certificated and licensed carriers of
persons or property (Tax Code 151.328), repair parts for vessels of eight or
more tons displacement used exclusively in a commercial enterprise (Section
151.329), and supplies essential to the operation of locomotives and trains
(Section 151.331). The sales tax law also contains provisions that may apply
to interstate trucking companies. Tax Code 151.330(h) exempts the sales of
tangible personal property to a common carrier if the property is shipped
outside the state using the purchasing carrier's facilities under a bill of
lading for use by the carrier outside the state. Section 151.330(i) exempts
the storage or use of tangible personal property acquired outside Texas for use
as a repair part for and affixed in this state to a self-propelled vehicle used
as a licensed and certificated common carrier of persons or property.

The sales tax law taxes the sales price of tangible
personal property sold, stored, used, or consumed in Texas, unless the property
is specifically exempted or excluded from the tax. Although the Texas sales
tax law makes no provision for apportionment of tax on tangible personal
property, a taxpayer is entitled to a credit against the Texas use tax for any
similar tax legally due and paid to another state (Section 151.303).

These provisions of the law were enacted by the
Texas Legislature. This agency is charged with administering the law as
written. Administrative agencies are not authorized to rule on the
constitutionality of the statutes they administer [Texas State Board of
Pharmacy v. Walgreen Texas Company, 520 S.W.2d 845, 848 (Tex. Civ. App., Austin
-1975, writ ref'd n.r.e.)]. The courts are the proper forum for constitutional
issues.

However, we will be glad to answer any other
questions you have concerning the sales and use tax responsibilities of
interstate trucking companies. If you have other questions or need additional
information, please call Tom Soto in the Tax Policy Division at
1-800-531-5441, extension 3-4675.

Sincerely,

Karey Barton
Manager, Tax Policy Division

NOTE: Previous Accession Number 9609557L