Ezel / Tax Rulings / TX
TX 9102L1078E04 Sales and/or Use Tax (State,Local,MTA) 1991-02-20

How did Texas tax a prison construction contract for the Federal Bureau of Prisons on city-owned land leased to the federal government?

Short answer: Texas treated it as a federal contract: no tax was charged on materials incorporated into the realty, but the contractor owed tax on equipment used to build it.

Apply this to your situation

This page answers the general question as of 1991. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1991
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is an official Texas Comptroller of Public Accounts letter published on the State Tax Automated Research (STAR) system. Letters on STAR can be the basis of a detrimental reliance claim only for the taxpayer to whom the letter was directly issued (see 34 Tex. Admin. Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded. Taxpayer-identifying details are redacted. This summary is informational only and is not legal or tax advice. Consult a licensed Texas tax professional about your specific situation.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page) is the authoritative source for any reliance.

Plain-English summary

A contractor planned to bid on a Federal Bureau of Prisons project built on land owned by a city and leased to the federal government. The Comptroller said the project would be treated as a contract for the federal government.

The contractor was not required to charge tax on materials incorporated into the realty. It was, however, required to pay tax on equipment it purchased and used to build the structure. The letter enclosed Rule 3.291 on contractors.

What this means for you

The city ownership of the land did not prevent federal-contract treatment because the land was leased to the federal government and the contract was for the Federal Bureau of Prisons. The ruling drew a clear distinction between incorporated construction materials and the contractor's own equipment.

Common questions

Was the project treated as a federal contract? Yes.

Did the contractor charge tax on materials incorporated into the prison? No.

Did the contractor owe tax on construction equipment? Yes, on equipment it purchased and used to build the structure.

Who was the project for? The Federal Bureau of Prisons.

Who owned the land? A city owned it and leased it to the federal government.

Citations and references

  • 34 Tex. Admin. Code § 3.291 (contractors)

Source

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

JOHN SHARP
Comptroller February 20, 1991

Dear ***:

Thank you for your recent letter regarding a contract that you
will be bidding on for the Federal Bureau of Prisons. In our
phone conversation you said that the project is being built on
land owned by the City of *** and leased to the federal
government.

This will be treated as a contract for the federal government.
You will not be required to charge tax on materials incorporated
into the realty. However, you will be required to pay tax on
equipment you purchase and use to build the structure.

I am enclosing a copy of rule 3.291 regarding contractors for
your reference.

This opinion is based on the facts you presented. Other facts,
though similar, may yield different results.

If you have questions or need more information, please call our
toll-free number 1-800-531-5441. My direct line number is 512-
463-4680 (FAX (512) 475-0900]. You may write to me in care of
Tax Administration Division

Sincerely,
Al Van Allen
Tax Administration Division

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