When did a binding quote or blanket purchase order qualify for Texas's prior-contract exemption?

Plain-English summary

A formal written quote that bound the seller before a tax was imposed or a rate increased qualified as a prior contract. Blanket purchase orders issued under that quote also qualified, and the letter said the exemption applied to state, city, and MTA taxes.

The exemption ended three years after the tax or rate increase. A customer-requested change requiring more expensive materials caused the exemption to be lost, as did a change made because of the tax. A quote adjustment for cost-of-living increases did not end the exemption.

Common questions

Could a formal quote qualify? Yes, if it was written and binding on the seller before the tax change. Did later blanket orders qualify? Yes, when issued under that quote. Did every price change end the exemption? No; the letter preserved it for cost-of-living increases but not for the described material upgrades or tax-driven changes.

Citations and references

• 34 Tex. Admin. Code Rules 3.376 and 3.426 — referenced as the governing prior-contract rules; the enclosures are absent from STAR's reproduced text.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8506L0648A04

Original ruling text

June 17, 1985

Dear ***:

Thank you for your letters of June 5 and June 11, 1985, concerning prior
contract exemptions.

A prior contract exemption applies to state, city and MTA taxes. Refer to
enclosed rules 3.376 and 3.426.

Your specific questions and answers follow:

1. If a formal quote is submitted prior to the imposition of a particular
   tax, or tax rate increase, does the prior contract exemption apply to
   any blanket purchase orders issued pursuant to that quote?

A. A formal written quote which is binding on the seller will qualify as
a prior contract if provided prior to the imposition of the tax or the
rate increase. Blanket purchase orders issued pursuant to that quote
will qualify for the prior contract exemption.

2. If not, since a blanket purchase order is a contract to purchase
   taxable items, does the prior contract exemption apply to the entire
   term of a blanket order issued prior to the imposition of a tax or a
   tax rate increase?

A. Same as above. The prior contract exemption ceases three years from
the date of tax imposition or tax rate increase.

3. Do change orders affect the prior contract exemption for blanket
   purchase orders? If so, under what circumstances?

A. Yes - if the customer request changes which require the seller to
provide more expensive materials, the prior contract exemption is
lost. If the written quote changes for cost of living increases, the
prior contract exemption will not be lost. If the change is because
of the tax, the prior contract exemption is lost.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

If you have any questions or need more information, please call us at
1-800-252-5555 toll free from anywhere in Texas. You may write us at the
Tax Administration Division.

Sincerely,

Tax Administration Division