Did a tax clause in rental, lease, and service agreements destroy the prior-contract exemption from Texas's October 1, 1987 rate increase?

Plain-English summary

The submitted rental, lease, and service agreement contained a tax paragraph. The Comptroller said that wording did not destroy the prior-contract exemption from the October 1, 1987 state sales-tax rate increase.

Rule 3.319(c)(4) disqualified a different kind of contract: one expressly making the customer responsible for tax-rate changes or increases. Such a clause protected the seller from the rate change, so the price was not fixed.

The exemption lasted only until the original agreement ended or June 30, 1990, whichever came first.

What this means for you

The historical answer depended on the exact tax clause. Not every reference to taxes destroyed the exemption, but expressly shifting later rate increases to the customer did.

Common questions

Did the submitted clause destroy the exemption? No.

What clause would disqualify a contract? One specifically shifting tax changes or increases to the customer.

How long could the exemption last? No later than June 30, 1990.

Citations and references

• 34 Tex. Admin. Code Rule 3.319(c)(4) — historical prior-contract disqualification for tax-shifting clauses.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8801L0853B06

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller January 8, 1988

Dear ***:

Thank you for your letter concerning prior contract exemptions.

You asked whether the increase in the state sales tax rate which was
effective October 1, 1987, applies to monthly billings under your current
rental, lease and service agreements. Paragraph 17 of the sample
agreement
submitted relates to taxes. This wording will not cause the loss of a
prior
contract exemption.

Section (c)(4) of Rule 3.319 (enclosed) is intended to disqualify those
contracts which specifically state that the customer is responsible for
any
change or increases in the tax rate. In these cases, the seller is not
affected or harmed by a change in the tax rate. He has allowed for
changes
in the tax rate by shifting the burden to his customer. His price is not
fixed; it may change depending on the tax rate.

The prior contract exemption for the October 1, 1987 increase in the
state
sales tax rate will be valid only until the original agreement ends or
June
30, 1990, whichever comes first.

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 our
toll-free
number 1-800-531-5441. The regular number is 512/463-4600. You may
write me
at the Tax Policy Division.

Sincerely,
Julie Pesl
Tax Policy Division