Co authors David Leonard and Austin Carlson
If you were able to keep your frac trailers from the clutches of your avaricious creditors during the past several unpleasant years, you could be in luck. Owners and lessors of frac trailers may be entitled to a refund for sales tax paid in connection with the purchase, lease, service, or repair of the trailers.
How did this happen?
This new guidance arises from an audit of FracCo (the company was anonymous) in which the Texas Comptroller imposed a tax bill of $9.3 million, plus $1.6 million in interest. FracCo argued it was entitled to a credit because it had erroneously paid sales tax in connection with the purchase of the trailers. The trailers consist of a radiator, engine, transmission, and pump, all mounted on a base trailer, and include fuel tanks and racks to carry high-pressure iron and discharge hoses.
FracCo purchased and/or leased its trailers from an affiliate—thereby creating a taxable event. FracCo argued motor vehicle taxes applied to this transaction; the Comptroller disagreed and argued sales and use taxes applied because the frac trailers were not “motor vehicles”.
An Administrative Law Judge decided in favor of FracCo. The frac trailer qualifies as a motor vehicle because it was designed to tow and carry property separate from itself—i.e., the high-pressure iron and discharge hoses. See 34 Tex. Admin. Code § 3.08(a)(2).
What are the implications?
In a word, significant for some. Texas imposes a general sales and use tax as well as a motor vehicle sales tax. Each has significantly different rules and applications. The sales tax is applicable to purchases, leases, and repairs. In contrast, the motor vehicle tax applies only to purchases, not to leases or repairs.
If you have paid sales and use tax on the lease or repair of a frac trailer, you may be entitled to a refund.
Read this and know what to do
To avail yourself of a refund in light of this ruling:
- determine whether you have paid sales tax in connection with the purchase, lease, service, or labor of a frac trailer. If so, then,
- determine whether the frac trailer is constituted in the same or similar manner as FracCo’s. This is to insure it qualifies as a “motor vehicle” for tax purposes.
If sales tax was paid on a qualifying trailer, request a refund from the Comptroller as soon as possible. To request a refund, a taxpayer must:
- Submit a written claim detailing each reason for the refund;
- Identify the time period during which the claimed overpayment was made; and
- Submit the claim within the limitations period (generally four years from the due date).
In response, the Comptroller may request documentation, such as accounting data and sales paperwork. If the Comptroller denies the refund, the next step is to request a refund hearing within 30 days of the denial.
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