Did an after-the-fact statement that tax was included in a lump-sum repair invoice protect the customer from Texas tax liability?

Plain-English summary

A customer received lump-sum invoices for taxable nonresidential repair and remodeling. Contractors later said sales tax had been included, but the invoices did not separately show it.

The Comptroller said a generic after-the-fact statement did not relieve the customer if the proper tax had not actually been paid. Until payment, both the customer and service provider could remain liable to the state. An agreement assigning tax responsibility between them did not bind Texas.

The customer could obtain protection through a specific vendor statement proving the correct tax was included and remitted. It had to identify the taxable service price, total tax, separate state and local-jurisdiction tax amounts and rates, and the reporting period in which the vendor remitted the tax.

Tax paid by the contractor on construction materials was not the same as tax collected on the taxable repair or remodeling service.

What this means for you

“Tax included” was not enough without auditable detail. The customer needed evidence that the vendor charged the correct jurisdictions and actually reported the transaction.

Common questions

Did a blanket contractor letter eliminate customer liability? No.

Could both parties remain liable? Yes, until the tax was paid.

What details were needed? Taxable price, tax amount, state and each local component, applicable rates, and the remittance period.

Did the contractor's tax on materials satisfy the service tax? No.

Citations and references

• Tex. Tax Code § 151.515 (Comptroller collection from a consumer)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9011L1060A01

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TEXAS 78774

BOB BULLOCK
Comptroller November 28, 1990

Dear *:

Thank you for your letter concerning lump-sum contracts and a contrac-
tor's statement that sales taxes were included in the amounts invoiced
to his customer for repair and remodeling of nonresidential real prop-
erty.

As stated in my September 18, 1990, letter, statements acquired after
the fact that sales taxes were included in lump-sum amounts invoiced
to your client will not relieve your client of the tax liability if
the appropriate taxes were not paid. If it is found in the event of
an audit that the appropriate taxes were not paid, both your client
and the service provider are liable to the state for the tax until it
is paid. Section 151.515 provides, "This chapter does not prohibit
the Comptroller from proceeding against a consumer for an amount of
tax that the consumer should have paid but failed to pay." If the tax
is assessed against the service provider, the service provider can
proceed against your client for the tax, the same as for the sales
price of taxable tangible personal property or another taxable service.

I cannot advise that your client will be relieved of the tax liabili-
ty without knowing that the service provider actually included the
appropriate tax (tax rates and local jurisdictions) on the taxable
service in the lump-sum charge and remitted the appropriate tax to
the state. If the "tax included" was tax that the service provider
paid on the purchase of materials used in the repair or remodeling
instead of tax on the sales price of the taxable repair or remodel-
ing service, the appropriate taxes were not collected and remitted.

Your client may be relieved of the tax liability if a more specific
statement is obtained from the vendor to insure that the appropriate
taxes were indeed included in the lump-sum charge and remitted to the
state. The information must include the sales price of the taxable
service, the amount of tax included with a breakdown of the tax for
the state and each local taxing jurisdiction, and the period in which
the tax was remitted to the state.

This opinion is based on the facts presented. If there are addition-
al or different facts, the opinion may change.

If you have any questions or need additional information, you may
write to Tax Correspondence, Comptroller of Public Accounts, or call
toll free 1-800-252-5555 or the regular number 512/463-4600. My ex-
tension is 3-4666.

Sincerely,
Jo Ann Dieck
Tax Correspondence

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TEXAS 78774

BOB BULLOCK
Comptroller September 18, 1990

Dear *:

Thank you for your letter concerning lump-sum invoices for repair and
remodeling which did not separate the sales tax amount.

You stated that contractors invoiced your client one lump-sum amount,
not separating the sales taxes from the contracted amounts. Subse-
quently, the contractor stated verbally that the lump-sum invoiced a-
mounts included the appropriate Texas sales taxes. You asked whether
the general/blanket statement (copy attached to your letter) obtaining
the contractor's affirmation that the appropriate taxes were included
in the lump-sum invoiced amounts and that the contractor assumed full
responsibility for reporting and paying the proper taxes to the state
would relieve your client of any future tax liabilities in regard to
said contracts.

Statements acquired after the fact that sales taxes were included in
lump-sum amounts invoiced to your client will not relieve your client
of the tax liability if the appropriate taxes were not paid. Past ex-
perience of this office has shown that construction companies usually
make a statement that tax is included when they have paid tax on their
purchase of materials used in the job. Also, agreements between a sel-
ler and a purchaser regarding responsibility for the tax are not bind-
ing on the state.

A purchaser is not relieved from sales and use tax liability unless a
receipt is obtained from either a Texas retailer or a Texas-permitted,
out-of-state retailer which shows that the tax has been paid. In order
to best prove to an auditor that the appropriate taxes have been remit-
ted to a vendor, at a minimum the billings should state the amount sub-
ject to tax and the total tax rate being charged. It would be better if
the invoices specified what tax types and what rates are involved (for
example, 6.25% state, 1.5% city, and .5% county). If the retailer is
an out- of- state company, the invoice should additionally state that
Texas taxes are being charged.

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 additional information, you may call
toll free 1-800-252-5555 or the regular number 512/463-4600. My exten-
sion is 3-4666. You may write to Tax Correspondence, Comptroller of
Public Accounts.

Sincerely,
Jo Ann Dieck
Tax Correspondence