Ezel / Tax Rulings / TX
TX 8704L0818D04 Sales and/or Use Tax (State,Local,MTA) 1987-04-22

When did a price increase end a Texas prior-contract exemption, and did an outside-factor exception apply when the contract omitted the increase formula?

Short answer: The exemption lasted through December 31, 1987 or until a price increase. An outside-factor increase could preserve it, but not where the contract omitted the basis for computing the increase.

Apply this to your situation

This page answers the general question as of 1987. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1987
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This 1987 Texas Comptroller letter addresses a historical prior-contract exemption that the source says lasted only through December 31, 1987 or until a price increase. The outside-factor exception depended on the contract stating a basis for computing the increase; the taxpayer's contract did not. Although STAR's caption mentions change orders and extras, the body decides only the stated price-increase issue. This exemption period has expired. Verify any current transition or contract rules rather than treating this historical provision as active. STAR documents may no longer represent current policy even when not marked superseded. Identities are redacted. This summary is informational only and is not legal or tax advice.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page) is the authoritative source for any reliance.

Plain-English summary

The Comptroller agreed that the historical prior-contract exemption remained valid until December 31, 1987 or until the contract price increased.

An increase based on factors outside the seller's and purchaser's control, such as a cost-of-living index, would not end the exemption. But the contract at issue did not state the basis for computing an increase, so that exception did not apply.

What this means for you

The source describes an expired transition rule, not a current exemption. Within that historical rule, contract drafting mattered: invoking the outside-factor exception required the contract itself to specify the basis for the price adjustment.

Common questions

How long did the stated prior-contract exemption last? Until December 31, 1987 or an earlier price increase.

Did every price increase end the exemption? Not if the increase was based on factors outside both parties' control and the contract provided the computation basis.

Did the exception apply to this contract? No. The contract did not state how an increase would be computed.

Did the letter separately decide change orders or add-on extras? No. Those topics appear in STAR's caption, but the operative text addresses price increases.

Citations and references

  • No statute or administrative rule is cited in the letter.
  • The letter gives December 31, 1987 as the outside end date for the historical exemption.

Source

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller April 22, 1987

Dear **:

I have received your letter of April 2, 1987, concerning a prior contract
exemption.

I agree with your statement that the prior contract exemption is valid
until
December 31, 1987, or until a price increase occurs, (please see the
second
paragraph of my letter to **.)

If the price is subject to change based on factors outside the control of
the seller and the purchaser, e.g. cost of living index, then the
exemption
is not lost when the price is increased. However, the contract with
** does not include a statement as to the basis for computing
any
increase and therefore this exception does not apply.

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 me at
1-800-252-5555 toll free from anywhere in Texas. The regular number is
512/463-4600. You may write me at the Tax Administration Division.

Sincerely,
Adina Whittemore
Tax Policy Section
Tax Administration Division

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