What contract language was required for a building owner to obtain an Enterprise Zone Project refund of tax on construction materials?

Plain-English summary

For the building owner to qualify for an Enterprise Zone Project refund, the contract itself had to separately state materials and labor or require those charges to be separated in later invoices or billings.

Under a lump-sum contract, the contractor was the ultimate consumer of the materials and bore the tax. Later invoices merely revealing material, labor, or tax amounts did not shift that burden to the owner unless the contract required separation.

Under a separated contract, the contractor resold the separately stated materials, bought them under a resale certificate, held a sales-tax permit, and collected tax from the owner as purchaser.

Common questions

Could after-the-fact invoice detail cure a lump-sum contract? No.

What had to require separation? The contract itself.

Who bore tax under a lump-sum contract? The contractor as consumer.

Who paid tax under a separated contract? The owner paid the contractor on the material sale.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8912L0970G11

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

December 14, 1989

Dear *****:

Thank you for asking about the language in the proposed building
contract for purposes of the Enterprise Zone Project tax refunds.
Ms. Ressel has asked me to reply to your inquiry.

I cannot tell from the language in the paragraph whether the
contract calls for separately stated materials and separately
stated labor charges. In order for the owner to be eligible for
refund of taxes paid on the building job, the terms of the con-
tract must either separate the charges for materials and labor in
the contract or must require that the charges for material will be
separated from the charges for labor or services. I cannot stress
enough the importance of complying with this requirement.

A lump-sum contract is one where under the terms of the contract
the charges for labor and materials are not separated or are not
required to be separated. Under the terms of such a contract, the
contractor is not a seller, but is by law considered the ultimate
consumer of the materials and solely bears the tax burden thereby
relieving the owner of any tax responsibility or liability. When
the contract calls for one lump-sum price, subsequent invoices or
billings that separate material and labor or that disclose tax
amounts paid do not shift the tax burden to the owner unless the
contract required that the invoices or billings be separated. The
contractor as a consumer must pay tax when purchasing material and
is not allowed to bill the owner for tax.

In a lump-sum contract, the language in the proposed paragraph
would not be sufficient to entitle the owner to a refund of taxes.
Although the language requires the contractor to reveal the amount
of taxes paid by the contractor, that information by itself does
not entitle the owner to a refund of tax that the contractor as
consumer was required to pay. The proposed language must require
separately stating materials and labor or must require that the
invoices for materials be included in the billings.

Under a separated contract, the contractor is a seller of the
separately stated material. A contractor under a separated
contract does not pay tax when purchasing material for the job.
Instead the contractor issues a resale certificate stating that
the material will be resold and tax will be collected. The
contractor must have a sales tax permit and is required to collect
tax from the owner who must pay tax as a purchaser of the
material.

This opinion is based on the information presented, additional or
different facts though similar may require a different result.

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-
4861. You may write me at the Taxability Section of Legal Ser-
vices Division.

Sincerely,
Tom Soto
Taxability Section
Legal Service Division