Could a developer use a municipal utility district's exemption when fronting the cost of a fire truck built from components?

Plain-English summary

A developer could front the cost of a municipal utility district's fire truck using resale treatment, but had to follow separate sales-tax and title procedures.

The developer could buy the chassis and cab solely for resale and issue the fabricator a resale certificate after obtaining a sales tax permit.

After the district agreed to buy the truck, the developer could retain title as security under former article 6.03(A). The letter required a sales contract, transfer affidavit, title application, and manufacturer's statement of origin. The later district transfer required its own affidavit, title application, and assigned title.

What this means for you

An exempt ultimate owner did not eliminate intermediary compliance. The developer needed a real resale structure and complete documents.

Common questions

Q: Could the developer buy the chassis tax-free?
A: Yes, solely for resale.

Q: Could it retain title?
A: Yes, as security after agreeing to sell to the district.

Citations and references

• Texas Water Code — district authority described in the facts
• Texas Tax-General Annotated art. 6.03(A) — title retained as security
• Historical forms 2C00-2.09 and 30U; Manufacturer's Statement of Origin

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/8102L0315E07

Original ruling text

February 4, 1981

RE: ***

Dear ***:

I have completed a review of the question raised in your letter of
January 16, 1981. The facts as we understand them are as follows:

*** Municipal Utility District #1 is created and
maintained pursuant to the Texas Water Code. The District may establish,
operate and maintain a fire department and may issue bonds to finance
construction and purchase of the necessary buildings and equipment. The
District intends to create and maintain a fire department, but the bonds
have not yet been issued to finance the expenses. COMPANY ABC is the
developer of property within the District and has offered to "front-end"
the cost of a fire truck for the District if the District will reimburse
it for the cost of the equipment from the proceeds of the bonds issued
for that purpose. The Boards of Directors has agreed to the arrangement.
The bid proposal for the firetruck consist of two separate contracts:
the first contract is for the purchase of a truck chassis and cab; the
second contract is for the fabrication of a booster truck firefighting
unit on the chassis and the supply of the usual firefighting equipment
of such a truck.

Your question is whether the prefinancing developer may make use of the
tax exempt status of the ultimate consumer (the District) in purchasing
the components of the firetruck. The simply answer is yes, but the
procedure to be followed is not so simple. You will be dealing with
provisions of both the Limited Sales, Excise and Use Tax Act and those
of the Motor Vehicle Sales and Use Tax Act.

CHASSIS AND CAB. The developer may certify to the seller of the chassis
and cab that the purchase is solely for the purpose of resale and therefore
tax-free.

FABRICATION WORK. As I understand it, the truck chassis and cab will be
delivered to the second contractor who will do the fabrication work. This
second contractor will be responsible for collecting sales tax on the
fabrication work and the materials used in ultimately producing the
firetruck. To relieve the second contractor of the burden of collecting
the tax, the developer needs to issue a resale certificate as provided for
under the Limited Sales, Excise and Use Tax Act. To issue this certificate,
the developer must be a holder of a sales tax permit. If the developer is
not permitted, he may go to one of our local field offices and obtain a
permit.

TITLE TO FIRETRUCK. After the firetruck has been finally fabricated, the
developer will want to register and title the vehicle. After the District
enters into an agreement to purchase the truck, the developer may still
retain title in his own name as security for payment from the District,
TEX. TAX.-GEN. ANN. art. 6.03(A).

Documents necessary to take title in the developer's name:

(1) The sales contract between the developer and the District.

(2) The seller, donor or trader's affidavit (form 2C00-2.09). Section 5
is completed by the developer (purchaser) with this explanation; firetruck
purchased for exclusive purpose of resale to (name of District). Title
retained in name of (developer's name) as security for payment from
(name of District).

(3) Application for Texas Certificate of Title (form 30U) to be completed
by developer to take title to the truck.

(4) Manufacturer's Statement of Origin (MSO)-assigned by the original
seller of the truck to the developer (it must accompany the application
for title because it is the MSO hat is converted into a title).

The affidavit, application for title and MSO are filed with the County
Tax Assessor-Collector by the developer. The sales contract is shown
to the Assessor-Collector to document the claim of purchase for resale.

Documents necessary to subsequently transfer title to the district:

(1) Seller, Donor or Trader's affidavit-Section 5 completed by the
District with explanation: Firetruck acquired by (name of District),
an exempt entity established under section (appropriate section number),
Texas Water Code.

(2) Application for Texas Certificate of Title-completed by the District
to take title from the developer.

(3) Texas Title-assigned to the District by the developer.

The affidavit, application for title and assigned title are filed with the
County Tax Assessor-Collector by the District.

I hope the outlined procedures prove satisfactory. If there is anything
else that I can do to be of service, please feel free to call or write.

Sincerely,

Mark Weiss
Director
Legal Services Division