News & Insights

Leases of Frac Trailers in Texas Are Not Subject to Tax if the Trailers Are Designed to Carry Separate Property

Tax Development Oct 06, 2016

The Texas Comptroller recently published an administrative hearings decision finding that a frac trailer is not specialized equipment subject to sales and use tax. Instead, the judge found that the frac trailers were “motor vehicles.”

Texas imposes state and local sales tax on leases of specialized equipment. No tax is due, however, on leases—agreements for more than 180 days—of motor vehicles, including trailers. In addition, no tax is due on charges for labor to repair, maintain, or restore motor vehicles (including trailers), but tax is due on charges to maintain, restore, or repair specialized equipment.

The administrative law judge determined that the frac trailers were not specialized equipment but were trailers because the frac trailers were designed to also carry separate property in addition to performing hydraulic fracturing. For example, the trailers included fuel tanks and racks to carry high-pressure iron and discharge hoses.

Citing 2006 Texas administrative hearings decisions 41,202 and 42,326, Comptroller staff argued that the frac trailers were not motor vehicles because their “primary” function was not to transport separate property on the highway. The administrative law judge rejected this argument, reminding staff that neither the law nor the Comptroller’s regulation regarding specialized equipment (34 TAC Sec. 3.88) included this requirement.

Taxpayers who have paid sales tax on leases of similar equipment may be entitled to sales tax refunds. 

TECHNICAL INFORMATION CONTACT:

Adina Christian
Director
Ryan
512.476.0022
adina.christian@ryan.com