Did a renewed Houston garbage-collection contract qualify for Texas's prior-contract sales-tax exemption?

Plain-English summary

The garbage-collection arrangement did not qualify for the prior-contract exemption. Because the requester separately billed members for garbage collection, it bought the service from another company for resale. The relevant exemption contract was therefore the requester's contract with the City of Houston, not its contract with the service provider.

The city contract was entered September 30, 1986 and renewed September 30, 1987. That renewal came after the July 21, 1987 cutoff, so it did not qualify as a prior contract. The requester had to add sales tax to member bills for garbage collected on or after October 1, 1987.

What this means for you

For this historical transition rule, the Comptroller looked to the contract with the customer receiving the resold service. The supplier contract's term did not control.

Common questions

Which contract mattered? The requester's City of Houston contract.

Why did the supplier contract not control? The requester was buying the service for resale and billing members separately.

Why was the exemption denied? The city contract renewed after the July 21, 1987 cutoff.

Citations and references

• No statute or rule number is cited in the ruling text.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8710L0842G11

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

October 1, 1987

Dear ***:

You asked that I review your garbage collection contract to see if it
would
qualify as a prior contract and be exempt from sales tax for its term.

It is your contract with the city of Houston which must qualify for the
prior
contract exemption rather than your contract with CORP A. Since you bill
members separately for trash or garbage collection, you are buying the
service from CORP A to be resold to members. The length of the term of
your contract with CORP A is irrelevant. To determine if you have a
prior
contract, you must look to your contract with the city of Houston.

The contract you provided me shows you entered into the contract with the
city on September 30, 1986 with provisions for two renewals. So, you
would
not have renewed the contract until September 30, 1987. Since the
renewal
date is after July 21, 1987 (the date the prior contract must be in
effect
for the exemption to apply), the renewal does not qualify as a prior
contract.

Your agreement with the city does not qualify as a prior contract. You
must
begin adding sales tax to your member's bills for any garbage collected
on or
after October 1, 1987.

Please feel free to contact me if you have additional questions. You may
write me, call toll free 1-800-252-5555 from anywhere in Texas or phone
512/463-4633.

Sincerely,
(Mrs.) Wanda Hutcheson
Tax Policy Division