Did a January 1990 contract avoid later Texas state and Amarillo sales-tax increases when it passed present and future taxes to the customer?

Plain-English summary

The Comptroller denied prior-contract relief for a January 1990 purchase agreement. When the seller billed the purchaser in August 1990, the tax included a 0.25% state rate increase effective July 1, 1990 and additional Amarillo local taxes that took effect after the contract was signed.

The agreement said its prices excluded present or future sales, use, excise, value-added, or similar taxes and required the customer to pay those taxes or provide an acceptable exemption certificate. The Comptroller called this a standard tax pass-through clause and said contracts containing such clauses did not qualify as prior contracts under Rule 3.319(c)(3).

What this means for you

Under this 1991 letter, signing a contract before a tax-rate increase did not preserve the old rate when the contract expressly shifted present and future taxes to the customer. The tax clause itself controlled the prior-contract analysis.

Common questions

Did the January 1990 contract qualify for the prior-contract exemption? No.

Which later taxes were included in the disputed bill? A 0.25% state tax-rate increase effective July 1, 1990 and additional Amarillo local taxes effective after the contract was signed.

Why did the exemption fail? The agreement required the customer to pay present and future transaction taxes, which the Comptroller identified as a pass-through clause.

Which rule did the letter cite? Comptroller Rule 3.319(c)(3).

Citations and references

• Comptroller Rule 3.319(c)(3) (cited in the letter for contracts containing tax pass-through clauses)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9103L1086E03

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

JOHN SHARP
Comptroller March 12, 1991

Dear ** :

Thank you for your recent letter. As I understand it, you
entered into a contract in January 1990 to purchase certain
taxable items. In August 1990 the seller billed you for tax
that included the .25% state tax rate increase (effective
July 1, 1990) and additional local taxes for Amarillo that
became effective after the contract was signed. You ask
whether the prior contract exemption applies to this
contract, thereby relieving you of liability for the rate
increases.

The contract does not qualify as a prior contract. I direct
your attention to Page 2 of the "Standard Conditions of
Quotation" (highlighted copy enclosed), which reads in part:

TAXES

Company's prices do not include sales, use,
excise, value-added or similar taxes.
Consequently, in addition to the prices specified
herein, the amount of any present or future sales,
use, excise, value-added or similar taxes
applicable to the manufacture, development, sale,
license, price, delivery, or use of the Equipment
and/or any Operating Package covered by this
Quotation shall be paid by Customer or, in lieu
thereof, Customer shall provide Company with a
tax-exemption certificate acceptable to Company
and the taxing authorities.

This is a standard "pass-through" clause, specifically
designed and intended to impose on the customer the burden
of paying any taxes due, at present or in the future, on the
transaction. Contracts that contain such clauses do not
qualify as prior contracts. Rule 3.319 (c)(3) (copy
enclosed).

This opinion is based on the facts presented. Different
facts, though similar, might lead to different answers. If
you have further questions, feel free to write or call me at
1-800-531-5441, ext. 3-3889.

Sincerely,
John Christian
Tax Administration