Could a company providing nontaxable construction-management services to a Texas city buy its telephone service, office supplies, and other inputs tax-free for resale?

Plain-English summary

The company owed tax on the telephone system, office supplies, and other items it used to provide construction-management services to the city.

The company was not a “contractor” for sales-tax purposes because it was hired to manage a treatment-plant expansion, not to make the permanent real-property improvements itself. Its contract also expressly said it was not the city's agent, servant, or employee.

Because it provided nontaxable management services as an independent service provider, it consumed the items used in performing those services. It could not buy them tax-free for resale to the city.

Common questions

Were the management services taxable? The letter described them as nontaxable.

Was the manager acting as the city's agent? No. The contract expressly rejected an agency relationship.

Could office supplies and telephone service be bought for resale to the city? No. The manager used those inputs itself and owed tax on them.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9008L1044A03

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TEXAS 78774

BOB BULLOCK
Comptroller August 10, 1990

Dear *:

Thank you for your letter dated July 31, 1990, concerning CORP A.

Earlier this year CORP A submitted a contract between itself and
the CITY X. According to the contract, CORP A was hired by the
CITY X to provide construction management services for the expan-
sion of the * Treatment Plant. CORP A is not a "contractor"
for sales tax purposes since CORP A was not hired to make perma-
nent improvements to real property.

The contract specifically states that CORP A is not the agent,ser-
vant or employee of the City.

As the provider of nontaxable management services, CORP A owes tax
on everything that it uses to provide these services. Since CORP A
employees use the telephone system, the office supplies, etc.,
these things cannot be purchased tax free for resale to the CITY X.

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