When did a Texas structural-steel business act as a contractor rather than a supplier, and how did that affect sales tax?

Plain-English summary

The Comptroller used responsibility for erecting structural steel to distinguish a contractor from a supplier under Tax Code § 151.056.

The business was a contractor when it was responsible for erection, whether its own employees did the work or it hired and paid another company. If that customer contract was lump-sum, the business owed tax on the cost of the incorporated materials.

When the business was not responsible for erection, it was a supplier or seller rather than a contractor. Like a lumberyard, it had to obtain a resale certificate or collect tax from the customer on the amount paid for the steel product.

Common questions

Did hiring another company to erect the steel avoid contractor status? No. The business remained responsible for erection if it hired and paid that company.

What did a lump-sum contractor owe tax on? The cost of the materials involved.

What if the customer handled erection separately? The steel business was a supplier and needed a resale certificate or had to collect tax on the sales price.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9004L0997D13

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

April 23, 1990

Dear **:

I hope I can clear up the confusion about the application of
sales tax in connection with lump sum contracts.

Tax Code Sec. 151.056 defines a contractor as someone who makes
improvements on real estate and in doing so "incorporates
tangible personal property into the property being improved."
According to that same code section, a lump sum contract is one
which does not set out separate charges for materials and labor.

Under these definitions, * would be a contractor in
situations where it is responsible for the erection of the steel,
either through the services of its own employees or the services
of another company hired and paid by *. If the contract
between * and its customer is for a "lump sum" * owes
tax on the cost of the material involved.

However, when * is not responsible for the erection work, it
is not operating as a contractor, and the concept of tax being
due on the cost or purchase price of the material does not apply.
Instead, * would be considered a supplier or seller of
structural steel products.

In such cases ** is in a position similar to a lumber yard.
It should either obtain a resale certificate or collect tax from
its customer on the amount the customer pays for the product.

I hope this answer is sufficient, but if I can be of further
help, please let me know. I can be reached at 512/463-4606, or
toll-free at 1/800/531-5441.

Sincerely,
Martin Cherry
Assistant Director
Legal Services Division