Did immediate federal title under NASA and acquisition regulations make a contractor's equipment purchase exempt from Texas sales tax?

Plain-English summary

NASA PR 13.703 and Federal Acquisition Regulation 52.245-3(c)(2) provided that title to reimbursable property bought by a contractor vested in the government upon vendor delivery. The Comptroller nevertheless said title passage alone did not turn an independent contractor's purchase into a purchase by the United States.

Items actually sold and transferred to the federal government could be purchased tax-free with a resale certificate. Goods used by the contractor on the government's behalf remained taxable.

Common questions

Did immediate passage of title automatically make the purchase exempt? No.

Which items could be purchased for resale? Items actually sold and transferred to the federal government.

Were goods used by the contractor taxable? Yes, even when used on the government's behalf.

Citations and references

• NASA PR 13.703 — federal title-passing clause quoted in the letter.
• Federal Acquisition Regulation 52.245-3(c)(2) — federal title-passing clause quoted in the letter.
• United States v. New Mexico, 455 U.S. 720, 102 S. Ct. 1373 (1982) — cited for federal tax-immunity limits and the insufficiency of title passage alone.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8512L0693A03

Original ruling text

December 11, 1985

Dear: ***:

Thank you for your follow-up letter and copies of federal regulations.

Both NASA PR 13.703 and Federal Acquisition Regulation 52.245-3 (c)(2)
state in part:

Title to all property purchased by the Contractor for which the contractor
is entitled to be reimbursed as a direct item of cost under this contract
shall pass to and vest in the Government upon the vendor's delivery of
such property.

Any items which are actually sold and transferred to the Federal Government
may be purchased tax free on a resale certificate. However, if the goods are
used by the contractor, on behalf of the government, they are taxable.

Support for this position is found in United States v. New Mexico et al,
455 U. S. 720, 102 S. Ct. 1373 (1982). In this case contractors managed an
atomic facility for the U.S. government, and the contract provided that title
to all tangible personal property purchased by the contractors passed directly
from the vendor to the government. On the other hand, the contractors placed
orders in their own names and were identified as the buyers. New Mexico
imposes a gross receipt tax and a compensating use tax on business in the
State. The government argued that taxing the contractors for the receipts used
to pay for tangible personal property purchased pursuant to the management
contract was constitutionally immune from state taxation.The court held that
"tax immunity is appropriate in only one circumstance: when the levy falls on
the United States itself, or on an agency or instrumentality so closely
connected to the government that the two cannot realistically be viewed as
separate entities, at least in so far as the activity being taxed is
concerned." The contractors were found to be independent entities, and the
court stated, "It is true that title passes directly from the vendor to the
Federal Government, but that factor alone cannot make the transaction a
purchase by the United States..."

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 Policy Section
Tax Administration Division