1. (a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

   1. (1) Storage--Any keeping or retention of tangible personal property in Texas for any purpose, except as provided in subsection (c) of this section.
   2. (2) Use--The exercise of any right or power over tangible personal property, except as provided in subsection (c) of this section. With respect to a taxable service, use means the derivation in this state of direct or indirect benefit from the service.
   3. (3) Use tax--A nonrecurring tax, complementary to the sales tax, which is imposed on the exercise or enjoyment of any right or power over taxable items incident to the ownership, possession, or custody of that item.

2. (b) Imposition of the use tax.

   1. (1) Out-of-state purchases and direct payment permit purchases.

      1. (A) If taxable items are purchased out of state for use in Texas and are brought or shipped into Texas for storage, use, or consumption, use tax is due. The liability may be extinguished by payment of the Texas use tax directly to the comptroller or to a retailer authorized to collect it. See §3.286 of this title (relating to Seller's and Purchaser's Responsibilities) concerning use tax permit requirements for out-of-state retailers. If taxable items are purchased under a direct payment permit and are stored and used or consumed in Texas, use tax is due. See §3.288 of this title (relating to Direct Payment Procedures and Qualifications).
      2. (B) The basis of the tax is the purchase price, and the tax should be reported in the period in which the taxable items are first stored, used, or otherwise consumed in Texas.
      3. (C) If storage facilities contain property purchased out of state or under a direct payment permit and it is not known when the property is stored whether the property will be used in Texas or will be removed from the state, then the taxpayer may elect to report the use tax either when the property is first stored in Texas or is first removed from inventory for use in Texas, as long as use tax is reported in a consistent manner. If use tax is paid on stored property which is subsequently removed from Texas, the tax may be recouped in accordance with the refund and credit provisions in §3.325 of this title (relating to Refunds, Interest, and Payments under Protest) and §3.338 of this title (relating to Allowance of Credit for Tax Paid to Suppliers).

   2. (2) Construction contracts.

      1. (A) If taxable items are brought into Texas by a contractor for use in the performance of a lump-sum contract or subcontract for the improvement to realty, use tax is applicable.
      2. (B) The basis of the tax is the purchase price, and the tax is due in the reporting period in which the item was first stored, used, or consumed in Texas. See §3.291 of this title (relating to Contractors).

   3. (3) Shipments of taxable items from out-of-state suppliers to purchaser's designees.

      1. (A) Use tax is due on taxable items purchased outside this state by a person engaged in business in this state if the taxable items are delivered at the direction of the purchaser to recipients in Texas designated by the purchaser. The purchaser owes use tax based on the purchase price of the items delivered to Texas.
      2. (B) For the purposes of this section, a person is engaged in business in Texas if the person is required to collect sales or use tax under the Tax Code, Chapter 151. If the purchaser is not a seller of taxable items, the person is engaged in business in Texas if the person has some physical presence in Texas in connection with a commercial enterprise.
      3. (C) Local use taxes (city, county, MTA, CTD) are also due but only to the extent the purchaser is engaged in business in the local taxing jurisdictions into which deliveries are made.

3. (c) Exceptions.

   1. (1) Use tax is not applicable to, and the terms "use" or "storage" do not include:

      1. (A) the sale, lease, or rental of tangible personal property in the regular course of business;
      2. (B) the holding of tangible personal property for the purpose of subsequently transporting it outside Texas for use solely outside Texas; or
      3. (C) the processing, fabricating, or manufacturing of tangible personal property into other property or attaching the tangible personal property to or incorporating the property into other property to be transported outside Texas for use solely outside Texas.
   2. (2) Use tax is not applicable if the purchaser paid sales tax to a Texas retailer or owes sales tax to a Texas retailer who failed to collect it. The comptroller may proceed against the seller or the purchaser for the sales tax owed by either.
   3. (3) Use tax is not applicable to the storage, use, or other consumption of taxable items in this state if the sale, lease, or rental of the taxable items would be exempt from the sales tax were it purchased within this state.
   4. (4) Credit will be allowed against the use tax liability to the extent a similar sales or use tax is legally due and paid to another state under the conditions provided in the Tax Code, Chapter 141 and Chapter 151, §151.303. See §3.340 of this title (relating to Multistate Tax Credits).
   5. (5) If taxable items were purchased out of state and used outside Texas for more than one year before the date of entry into Texas, the purchase will not be presumed to have been for use in Texas. Transactions covered by the provisions of the Tax Code, §151.330(a), are also subject to the one-year presumption if the items covered by the transactions are returned to the state by the purchaser. The use outside Texas must be substantial and constitute a primary use for which the property was purchased. Either the comptroller or the purchaser may introduce evidence to establish the intent or absence of intent to use the taxable items in Texas at the time of purchase.

Source Note:The provisions of this §3.346 adopted to be effective March 7, 1979, 4 TexReg 554; amended to be effective November 17, 1981, 6 TexReg 4070; amended to be effective December 3, 1984, 9 TexReg 5929; amended to be effective December 21, 1990, 15 TexReg 7029.