Did a service vendor avoid Texas sales tax merely because its customer was a joint venture holding a government contract?

Plain-English summary

Corporation X sold taxable services to a joint venture that held a government contract. X had to charge sales tax unless it received a properly completed and valid resale certificate.

The joint venture could issue a resale certificate only if it directly resold the taxable service to the government or resold it as an integral part of tangible personal property or another taxable service. X was a vendor to the joint venture, not a government subcontractor, because it was not improving government-owned real property.

Common questions

Did the government contract automatically exempt the vendor's sale? No.

When could the joint venture issue a resale certificate? When it directly resold the service to the government or as an integral part of a taxable item.

Was the vendor a government subcontractor? No, under the facts described.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9003L0995G12

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

March 30, 1990

Dear ***:

Thank you for your letter of March 13, 1990, concerning the tax-
ability of taxable services performed by CORP X for a joint venture
in which TI is a fifty percent owner.

The joint venture has a contract with the government. CORP X is re-
quired to charge sales tax on the sale of taxable services to the
joint venture unless it receives a properly completed, valid resale
certificate. In order to issue a valid resale certificate, the joint
venture must be reselling the taxable service directly to the govern-
ment or reselling the taxable service directly to the government or
reselling it as an integral part of a taxable item (tangible personal
property or another taxable service)

CORP X is not considered a government sub-contractor. Contractors,
as defined under the Texas Tax Code, are persons who improve realty
belonging to their customer. CORP X is a vendor selling services to
the joint venture.

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, you may call
toll-free 1-800-252-5555, ext. 304683. The regular number is 512/
463-4600. You may write me at Tax Correspondence, Correspondence,
Comptroller of Public Accounts.

Sincerely,
Eddie C. Washington
Tax Correspondence

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

March 14, 1990

Dear ***;

Thank you for your inquiry regarding common law taxable services
which might have future taxable implications.

I have forwarded your inquiry to our Tax Correspondence Division
in Austin who handles inquiries of this nature. They will research
this issue and respond to your question. Further correspondence
regarding this subject should be directed to the Comptroller of
Public Accounts, Tax Correspondence Division, Austin, Texas 78774.
We also have a toll free line manned by tax specialists for tax
practitioners. The number is 1/800/248-4093. Our regular toll
free number for routine issues is 1/800/252-5555.

Thanks again for your inquiry and please let me know if you have
any questions.

Sincerely,
Dan M. Linn
Field Audit Manager