Could a Texas repair or remodeling contractor accept a direct-payment certificate, buy transferred materials for resale, or use the certificate on lump-sum new construction?

Plain-English summary

Total charges for repairing, remodeling, restoring, or maintaining tangible personal property, and for repairing, remodeling, or restoring nonresidential real property, were taxable. A contractor performing that work for a direct-payment-permit holder could accept a direct-payment exemption certificate instead of collecting tax.

The contractor could give suppliers a resale certificate for materials transferred to the customer, but owed tax on equipment and consumable supplies that were not transferred. The permit holder could not authorize another person or business to make purchases using its permit.

The result was different for a lump-sum new-construction contract. The contractor was the consumer of every item used to complete that contract and could not accept the customer's direct-payment exemption certificate.

Common questions

Could the contractor accept a direct-payment certificate for taxable repair work? Yes.

Could transferred materials be bought for resale? Yes.

Who owed tax on equipment and consumables not transferred? The contractor.

Could a lump-sum new-construction contractor accept the certificate? No.

Citations and references

• Comptroller Rule 3.288(f).

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9005L1022F11

Original ruling text

May 24, 1990

Dear **:

Thank you for your letter dated May 15, 1990 concerning repair work
done for direct payment permit holders on commercial properties.

If you repair, remodel, restore or maintain tangible personal property
or repair, remodel or restore nonresidential real property, the
total charge to the customer is taxable. You may accept a direct
payment exemption certificate from a direct payment permit holder in
lieu of collecting tax.

You may issue a resale certificate to suppliers when purchasing
materials that will be transferred to the customer. You will owe tax
on equipment and consumable supplies that are not transferred to the
customer. The direct payment permit holder cannot authorize any other
person or firm to purchase taxable items using its permit.

If you perform lump-sum new construction contracts, you may not accept
a direct payment exemption certificate. A lump-sum contractor is the
consumer of all items used to complete the contract. Please refer to
section (f) of the enclosed Rule 3.288- on direct payment procedures.

I've also enclosed a copy of "Taxable Services As They Relate To The
Oil and Natural Gas Industry" for your reference. This lists the
types of items that are considered real property in the oil and gas
industry.

This opinion is based upon the facts you presented. If there are
additional or different facts, this opinion may change.

Please feel free to contact me if you have any additional questions.
You may write me, call toll free 1-800-252-5555 (ext. 3-4685) from
anywhere in the United States or phone 512/463-4685.

Sincerely,

Julie Pesl
Tax Correspondence