Who paid and collected sales tax when prime contractors or subcontractors used separated versus lump-sum real-property contracts?

Plain-English summary

A separated contractor stated materials separately from labor and was treated as a retailer. The contractor needed a sales-tax permit, could give suppliers a resale certificate for materials incorporated into the property, and collected and remitted tax on the sales price of materials bought tax-free.

A lump-sum contractor was the final consumer of materials incorporated into the customer's realty. That contractor paid tax to the supplier, ending the sales-tax liability described in the letter.

The same rules applied to prime contractors and subcontractors. A subcontractor could not pass the separated prime contractor's resale certificate to its own supplier. A separated subcontractor issued its own certificate; a lump-sum subcontractor paid supplier tax.

Common questions

Was a separated contractor a retailer? Yes.

Who paid tax under a lump-sum contract? The contractor paid its supplier.

Could a subcontractor use the prime contractor's resale certificate? No.

What did a separated subcontractor do? Issued its own resale certificate and collected tax on its material sale.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8605L0739A07

Original ruling text

May 29, 1986

Dear ***

Thank you for your letter of May 21, 1986 concerning the acceptance of
resale certificates.

A separated contractor, one who separately states materials from labor
in the contract, is considered to be a retailer. As a retailer he must
have a sales tax permit; may issue a resale certificate in lieu of tax to
his supplier on materials to be incorporated into the property and must
collect and remit sales tax to the Comptroller's office on the sales
price of the goods that were purchased tax free.

A lump-sum contractor is considered to be the final consumer of all
materials being incorporated into his customers realty. A lump-sum
contractor must pay tax to his supper on all purchases. This is the
end of the tax liability.

The above information applies to both prime contractors and
subcontractors.

A subcontractor who works for a separated prime contractor cannot pass
the prime contractors resale certificate to the supplier. If the sub
has a separated contract with the prime, the sub must issue his own
resale certificate to the supplier. If the sub has a lump-sum contract
with the prime, the sub must pay tax to the supplier on materials.

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