Does Texas use tax apply to repair or replacement parts (such as retreaded tires) bought out of state and installed in Texas on a common carrier's self-propelled vehicle?

Subject

Repair And Replacement Parts — Self-Propelled Vs. Nonpropelled Carrier — Out-of-State Purchase — Texas Installation

Plain-English summary

A company that retreads truck tires asked the Comptroller what documentation is needed for carriers to claim the use tax exemption in Section 3.297(a)(3). That rule says use tax is not due on repair or replacement parts acquired outside Texas and actually affixed in Texas to a self-propelled vehicle used as a licensed and certificated common carrier -- but the rule specifically excludes trailers, barges, and semitrailers, since those are not "self-propelled vehicles."

The Comptroller answered two questions. First, does the company need an exemption certificate from the carrier stating the retreads will be used only on self-propelled vehicles? Yes -- because the underlying statute (Texas Tax Code Section 151.330(i)) creates an exemption, the carrier must issue an exemption certificate confirming the retreads are used only on self-propelled vehicles, such as tractors.

Second, does the company need to document which of its locations (in or out of Texas) retreaded the carrier's tires? Yes. The company must keep records clearly showing where the casings were retreaded -- for example, serial numbers of the retreaded casings, or shipping documents showing the retreads were shipped from an out-of-state location to the carrier's Texas location. If the carrier instead picks up the casings at the company's out-of-state location, the carrier needs both the exemption certificate and records showing the pickup occurred out of state and that the retreads are used on self-propelled carrier vehicles. Importantly, if the company retreads the casings out of state but delivers them to its own Texas location, where the carrier then takes possession, the retreads are treated as acquired in Texas rather than from outside Texas -- meaning the exemption for out-of-state acquisition would not apply on that basis.

What this means for you

Tire retreading and repair-parts companies serving common carriers

If you retread or supply repair/replacement parts to licensed, certificated common carriers, you need an exemption certificate from the carrier before treating the sale as exempt from use tax. Keep records showing exactly where each casing or part was retreaded or shipped from -- serial numbers and shipping documents are the kinds of proof the Comptroller expects. Where you deliver the finished item matters: if you retread out of state but hand off the goods from your own Texas location, the item is treated as acquired in Texas, not from out of state.

Common carriers (trucking companies) claiming the exemption

To claim the Section 3.297(a)(3) exemption, you must issue an exemption certificate stating the parts are used only on self-propelled vehicles (not on trailers, barges, or semitrailers, which don't qualify). If you pick up retreads at the seller's out-of-state location, keep records proving the pickup happened out of state and that the parts are used on self-propelled vehicles.

Accountants and tax professionals advising carriers or parts suppliers

This letter is a useful documentation checklist for the Section 3.297(a)(3) exemption: an exemption certificate from the carrier, plus records tracing the parts' retreading/shipping location. Note the exemption only reaches self-propelled vehicles -- trailers, barges, and semitrailers are carved out by the rule's own text -- and that Texas-based delivery from the seller's own location can convert an "out-of-state acquisition" into a Texas one.

Common questions

Q: Does use tax apply to repair or replacement parts bought out of state and installed in Texas on a common carrier's truck?
A: No -- Section 3.297(a)(3) says use tax is not due on repair or replacement parts acquired outside Texas and actually affixed in Texas to a self-propelled vehicle used as a licensed and certificated common carrier.

Q: Does the exemption cover trailers, barges, or semitrailers?
A: No. The rule states that trailers, barges, and semitrailers are not considered self-propelled vehicles, so parts for those don't qualify under this exemption.

Q: What paperwork does the carrier need to give the seller?
A: An exemption certificate stating that the retreads (or parts) are used only on self-propelled vehicles, such as tractors. The legal basis for the exemption is Texas Tax Code Section 151.330(i).

Q: What records does the seller need to keep?
A: Records clearly showing where the carrier's casings were retreaded, which may include serial numbers of the retreaded casings and shipping documents showing the retreads were delivered or shipped from an out-of-state location to the carrier's Texas location.

Q: What if the carrier picks up the retreads directly from the company's out-of-state location?
A: The carrier must still issue the exemption certificate, plus keep records showing the retreads were picked up out of state and that they're used on self-propelled carrier vehicles.

Q: What if the company retreads the tires out of state but delivers them from its own Texas location?
A: Then the retreads are considered acquired in Texas rather than from outside Texas.

Q: Could this answer change under different facts?
A: Yes -- the letter states the opinion is based on the facts presented, and the opinion may change if there are additional or different facts.

Citations and references

Statutes and rules:

• Section 3.297(a)(3) (use tax exemption for repair/replacement parts on self-propelled common carrier vehicles)
• Texas Tax Code Section 151.330(i) (statutory basis for the exemption)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9611826L

Original ruling text

November 12, 1996

VIA Facsimile ***

Dear ***:

Thank you for your letter of November 8, 1996, requesting a clarification
about what documentation is required for carriers claiming the exemption
under Section 3.297(a)(3) concerning carriers.

Section 3.297(a)(3) states: "Use tax is not due on
repair or replacement parts acquired outside this state and actually affixed in
this state to a self-propelled vehicle that is used as a licensed and
certificated common carrier. Trailers, barges, and semitrailers are not
considered to be self-propelled vehicles." (Emphasis added.)

Question 1. Does COMPANY X (the company) need an exemption certificate from the
carrier stating that the product will be used for self-propelled vehicles only?

Answer: The basis for Section 3.297(a)(3) is Texas Tax Code Section 151.330(i).
This is an exemption; thus, the carrier must issue an exemption certificate
that states the retreads are used only on self-propelled vehicles, i.e.,
tractors.

Question 2. Does the documentation showing that the company has several
locations which retread the carrier's tires inside and outside the State
of Texas need to be presented?

Answer:The company must keep records that clearly show where the carrier's
casings were retreaded. Such records may include, but are not limited to:

the serial numbers of the carrier's casings that are retreaded;

shipping documents showing the company delivered or shipped the retreads from
an out-of-state location to the carrier's Texas location.

If the carrier picks the casings up from the company's
out-of-state location, the carrier must issue an exemption certificate as
specified in the answer to Question 1. The carrier must have records that show
the retreads were picked up at the company's out-of-state location. The
carrier must have records that support its claim that the retreads are used on
self-propelled carrier vehicles.

If the company retreads the carrier's casings at one of
its retreading operations in another state and delivers the retreads to its
Texas location from which the carrier takes possession of the retreads, the
retreads will be considered acquired in Texas rather than from outside Texas.

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

You may call me toll free 1-800-531-5441, extension 3-4683. The direct line is
512/463-4683. You may also write to Tax Policy Division, Comptroller of Public
Accounts.

Sincerely,

Eddie C. Washington
Tax Policy Division