Could a purchaser's unsigned purchase order qualify for Texas's prior-contract exemption, and were later change-order additions covered?

Plain-English summary

The Comptroller reviewed the submitted purchase orders and concluded that the purchase order did not meet the prior-contract exemption requirements. A purchaser-issued purchase order could qualify as a contract only if the seller signed and dated it.

A bid or contract qualified as a prior contract when offered or signed before a tax-rate or tax-base change. A purchase order issued by the purchaser before the change was not enough unless it was issued or fulfilled by the seller before the change.

Later change orders adding taxable items, labor, or services were not covered by the prior-contract exemption. If the original agreement qualified, however, that original portion could remain exempt when the change orders were separately identifiable.

What this means for you

The historical relief depended on the seller's documented commitment before the tax change. Later additions did not inherit the original contract's protection, so separating them preserved only the qualifying original portion.

Common questions

Did the reviewed purchase order qualify? No.

Could a purchaser-issued order ever qualify as a contract? The letter required the seller to sign and date it.

Were later additions covered by the exemption? No.

Could the original agreement remain exempt? Yes, if it originally qualified and the change orders were separately identifiable.

Citations and references

• Texas Comptroller Rule 3.319, prior-contract exemption referenced by the letter

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8710L0833C01

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller October 12, 1987

Dear ****:

Thank you for your letter inquiring about Prior Contract Exemptions.

The copies of the purchase orders you sent were reviewed. The purchase
order does not meet the requirements for a prior contract exemption.

A purchase order issued by a purchaser may qualify as a contract only if
signed and dated by the seller.

A prior contract or bid is a bid offered or a contract signed before any
change in the tax rate or tax base. A purchase order issued by the purchaser
prior to the rate change is not a prior contract unless issued and/or fulfilled
by the seller prior to the rate change.

Change orders which constitute additions to the contract or increases in
coverage of taxable items, labor or services added to the contract are not
included in prior contract exemptions. If the original part of a contract
qualified as a prior contract then the original agreement could continue to
qualify for exemption if the change orders can be separately identified.

Please refer to the enclosed rule 3.319.

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 Policy Division.

Sincerely,
Eddie C. Washington
Tax Policy Division