Could a county claim its political-subdivision exemption for Astrodome purchases and real-property improvements benefiting a private lessee?

Plain-English summary

The Comptroller told county personnel to stop claiming exemption for taxable purchases and real-property improvement contracts for the Astrodome when the facility was leased to the private Houston Sports Association.

Items bought for the facility benefited and were used by the private lessee, not the county. The statutory exemption for items used by a Texas political subdivision therefore did not extend to those purchases.

Likewise, a contract to improve an exempt entity's real property was not an exempt contract when the improvement was for a private party's use and benefit. The letter cites Rule 3.291(c).

What this means for you

Government ownership did not control by itself. For both purchased property and realty improvements, the Comptroller looked to who actually used and benefited from the transaction. Suppliers following incorrect county exemption instructions could face audit liabilities.

Common questions

Did county ownership make all Astrodome purchases exempt? No.

Why were the purchases taxable? They were for the use and benefit of the private lessee, Houston Sports Association.

Was a contract improving county-owned real property exempt? Not when the improvement was for a private party's use and benefit.

Why did the Comptroller ask the county to correct its communications? County personnel had asserted exemption through bid specifications, contracts, other writings, and verbal statements, causing confusion and audit liabilities for vendors.

Citations and references

• Comptroller Rule 3.291(c) — cited for improvement contracts involving exempt entities and private use or benefit.
• The political-subdivision exemption is referenced but not cited by statute number.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8704L0822A01

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller April 27, 1987

Dear ****:

It has recently been brought to our agency's attention that ABC County
personnel are erroneously claiming sales and use tax exemption on purchases of
taxable items and contracts to improve real property for the DOME. As I
understand it, this is being done through bid specifications, contracts and
other written documents, as well as through verbal communications. This has in
turn caused confusion for the various companies who do business with ABC
County, resulting in rather large audit liabilities in some cases.

It is our understanding that the DOME is leased to a private party, the
Houston Sports Association. Any items purchased for use in this facility are,
therefore, for the benefit and use of the private party, not ABC County. The
statutory exemptions for items used by a political subdivision of the State of
Texas do not extend to items used by your lessee. Additionally, a contract to
improve real property belonging to an exempt entity for the use and benefit of
a private party is not considered an exempt contract. See subsection (c) of the
enclosed Rule 3.291.

Please make this information available to all county personnel who work
with purchases for the Astrodome so that sales and use tax can be properly
paid.

Please feel free to contact me if you have any questions on this matter.
You may write me or call toll free 1-800-252-5555 from anywhere in Texas or
phone 512/463-4600.

Sincerely,
Sandi Skaggs
Tax Policy Section
Tax Administration Division