Texas – Boat Brought Into Texas After Purchase Was Subject to Use Tax

SALT Report 2469 – The Texas Comptroller issued a ruling regarding use tax assessed on a Taxpayer’s boat purchase. In this case, the Taxpayer contracted with an out-of-state broker to facilitate the boat’s purchase and subsequently met the broker outside Florida waters to take delivery of the boat.

In 2011 the Taxpayer was audited by the Comptroller for sales and use tax compliance. During the audit it was determined that the boat, which was purchased outside Florida, was brought into Texas where it remained docked. Additionally, the Taxpayer’s boat insurance policy named a city in Texas as the boat’s primary berthing location. Because of this the Comptroller determined that the boat was purchased for use in Texas and tax should have been paid.

Upon completion of the audit a Texas Notification of Audit Results, was sent to the Taxpayer which detailed the use tax assessment, penalty, and interest. The Taxpayer requested a redetermination for the following reasons:

  • The Taxpayer is not required to pay Texas sales and use tax on its purchase of the Boat because it was not purchased in Texas,
  • The Taxpayer is not required to pay sales and use tax on its purchase of the Boat because it was never used in Texas,
  • The purchase of the Boat was an exempt occasional sale,
  • The Taxpayer detrimentally relied on the incorrect advice of a Texas Parks and Wildlife representative that no sales and use tax was due if the Boat was not kept in Texas for more than 90 days, and
  • The penalty should be waived because the Taxpayer relied on incorrect advice from the Texas Parks and Wildlife representative

In its decision the Comptroller stated that an exempt occasional sale includes “one or two sales of taxable items at retail during a 12-month period by a person who does not habitually engage, or hold himself out as engaging, in the business of selling taxable items at retail.” This exemption does not apply to a sale made by a person who holds a sales and use tax permit.

Therefore, the Comptroller ruled that the boat purchase was not an exempt occasional sale because the Taxpayer purchased the boat from the Broker who is engaged in the business of selling taxable items. The Comptroller also dismissed the Taxpayer’s argument that it purchased the boat from the former owner, not the broker, because the bill of sale, the purchase contract, the protocol of delivery, and the acceptance sheet all identified the broker as the seller. Consequently, the occasional sales exemption did not apply to this purchase.

Finally, the Comptroller dismissed the Taxpayer’s argument that it should be relieved of the use tax, penalties, and interest because it relied on advice that it received from an employee of the Texas Parks and Wildlife Department because the detrimental reliance policy does not extend to advice provided by an employee or representative of a different state agency.

For Further Information

Texas Comptroller of Public Accounts – Decision, Hearing No. 106,336