Sales, Use and International Tax Activity Update - March 2010

Texas Topples Refinery Scaffolding…Exemption

Transactions between a refinery owner and independent contractors for the installation of temporary scaffolding at a refinery were held to be taxable rentals of tangible personal property rather than purchases of nontaxable services for Texas sales tax purposes.

Transfer of Possession

A rental of the scaffolding occurred because possession was transferred to the taxpayer. Possession is established when a lessee exercises operational control over the leased property. Here, the taxpayer exercised operational control over the scaffolding by using it to access high-up areas to perform maintenance work on tall structures. The only people who used the scaffolding to access high-up areas were the taxpayer's maintenance workers. The scaffolding contracts did not cover maintenance work. The fact that the scaffolding contractors controlled access to the scaffolding was not the same as controlling the use of the scaffolding.

Taxable Rental, Nontaxable Services

Although the scaffolding contracts incorporated some nontaxable services, including the erection, oversight, and disassembly of the scaffolding, the Court of Appeals concluded that the essence of the transactions was the taxpayer's rental of the scaffolding itself, not the attendant services performed by the scaffolding contractors. The taxpayer’s underlying goal in executing the contracts was to facilitate maintenance work. Thus, the contracts were taxable because the taxpayer was essentially renting property, not obtaining services.

Failure to Exhaust Administrative Remedies

The Court of Appeals held that the trial court lacked jurisdiction to hear the taxpayer's tax refund claims that were unrelated to the scaffolding claim because the taxpayer failed to fulfill the administrative prerequisites to filing suit.

The taxpayer's initial refund request addressed only the scaffolding issue. The taxpayer's attempt to add new unrelated claims in its motion for rehearing on the scaffolding claim was impermissible.

 

This case can be viewed on the Texas 3rd Court of Appeals Web site.

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