Was remodeling exempt when a private company leased a privately owned building to perform a reimbursed service contract for a Texas agency?

Plain-English summary

A private company contracted with the Texas Public Utilities Commission to provide a relay service for hearing- and speech-impaired users. The company had to provide the location, operators, equipment, and everything else needed for the service.

It leased an existing building from a private owner and hired another private company to remodel it. Texas sales or use tax was due on the remodeling contract. Reimbursement of all expenses by the PUC and the company's description as a state contractor did not create an exemption.

The Comptroller emphasized that the remodeler's customer was a taxable private entity leasing from another taxable entity, and the building was used by the contractor's own employees.

What this means for you

Performing a reimbursed service contract for an exempt state agency did not pass the agency's exemption through to a private company's separately leased and remodeled premises.

Common questions

Was the remodeling contract taxable? Yes.

Did full PUC reimbursement make it exempt? No.

Did being called a state contractor create an exemption? No.

Citations and references

• No numbered statute or rule was cited in the letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9009L1045A10

Original ruling text

September 4, 1990

Dear ***:

I apologize for the delay in responding to your letter regarding your contract
with the Public Utilities Commission of Texas (PUC). Your specific question
deals with repair and remodeling of nonresidential real property.

I am restating the facts according to information contained in your
correspondence and information received during our telephone conversation
of August 29. COMPANY A was awarded the contract to provision the dual-party
relay service for the state of Texas. COMPANY A is responsible for providing
the location, operators, equipment, and everything necessary to this service
which involves relaying telephone conversations between the hearing and speech
impaired using a TDD or other automated device and other persons not using
such equipment.

As a part of meeting your contractual obligations to the PUC, COMPANY A has
secured an existing building located in Austin and has had this building
remodeled. The building is owned by a private entity and the lease contract
is between COMPANY A and this private entity. The contract to repair and
remodel this building is between COMPANY A and the remodeling company,
ABC CORP.

Texas sales or use tax is due on the remodeling contract. Even though
COMPANY A is reimbursed for all expense by the PUC and is referred to as a
state contractor (because they are contracted with a state agency to provide
a service for that agency) there is no exemption. The remodeler's contract is
with a taxable entity who is leasing property from another taxable entity. The
use of the building is by employees of COMPANY A.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change. You may also write to Tax Correspondence,
Comptroller of Public Accounts.

Sincerely,

Tax Policy Division
Tax Correspondence