Did transferring land to a contractor count as payment, and did the customer owe sales tax on a lump-sum geodesic-dome construction contract?

Plain-English summary

A customer paid $1,000 to lock in a geodesic-dome price, later transferred an interest in 19.5 acres for a $20,086.25 credit, and eventually had the domes delivered and erected. Despite the long delay, the Comptroller viewed the arrangement as one contract completed over several years.

If the contractor agreed to provide and erect the domes, the transaction was a lump-sum new-construction contract. The contractor was the consumer of the incorporated materials and owed tax to its suppliers; the customer owed no sales tax on the lump-sum contract.

The contractor nevertheless billed the customer $1,560.36 as tax. That amount was not due and had to be remitted to Texas unless refunded to the customer. A contractor that had already remitted it could seek a state refund after first repaying the customer.

The land transfer counted as consideration just like cash. Its cash value was the $20,086.25 credit the contractor gave in exchange.

What this means for you

Noncash property can pay for a contract, but that does not change which party bears tax under a lump-sum new-construction arrangement. Amounts collected as tax cannot simply be retained when no tax was due.

Common questions

Did the land count as payment? Yes.

Who owed tax on construction materials? The lump-sum contractor.

Did the customer owe sales tax on the contract? No under the stated facts.

What had to happen to tax collected in error? It had to be remitted to Texas or refunded to the customer.

Citations and references

The letter did not cite a statute or rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9103L1094B01

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, which was transferred to
me by ** of our Tyler enforcement office.
According to your letter, you have purchased a geodesic dome
residence. As I understand it, this is the order of events:

June 12, 1982: You gave a check for $ 1,000.00 to COMPANY A
(PARTY A ) to freeze the price on a dome kit, skylights
and insulation.

July 25, 1985: You transferred an interest in 19 1/2 acres
of land to COMPANY B (PARTY B) in exchange for credit in
the amount of $ 20,086.25.

November 14, 1989: You paid $ 372.00 to PARTY A to
deliver the dome kits to your property in Caddo Mills.

September 1990: PARTY A started construction of the
domes on your property, and presented you with the
following bill:

45' dome $ 9702
4 skylights for 45' dome 1568
35' dome 7450
2 skylights for 351 dome 784
19504.00
Sales tax @8% 1560.36 (sic)
Total 21064.36

By this time, you had credit in the amount of $ 21,086.25
with PARTY A and/or PARTY B (which does not include
the delivery charge).

This transaction can seem confusing because so many years
elapsed between the time of payment for the domes, and the
time they were actually delivered to you and constructed on
your property. However, it appears that this is a single
contract that just took several years to complete.

If your agreement with the contractor was that he would both
provide and erect geodesic domes, then this was a lump-sum
contract for new construction. Under Texas law, a lump-sum
contractor is the consumer of, and is responsible for
payment of tax on, all materials used or consumed in the
performance of the contract. PARTY A and/or PARTY B
owed tax on the purchase price of all materials. They were
responsible for paying this tax to their suppliers at the
time of purchase. You, the customer, owed no tax on the
lump-sum contract for new construction.

But you have been billed $ 1560.36 in sales tax. This tax
was collected from you, but was not due. The contractors
must remit this entire amount to the state, unless they
refund it to you. If they have already remitted the money
to the state, they may apply for a refund to this agency,
provided they can prove they first refunded the money to
you. In any event, Texas law prohibits a person from
"pocketing" money that is collected from a customer as tax.

You mentioned that someone at this office concluded that "no
money was actually exchanged" in this transaction. This is
incorrect. The payment of $ 1,000.00 by check and the
transfer of the 19 1/2 acres of land both constitute
"consideration" exchanged for the contractor's services.
The "cash value" of the land was $ 20,086.25 (the amount of
credit the contractor extended in exchange for the land).
In other words, trading in the land was the same as if you
had paid the contractor $ 20,086.25 in cash.

Apart from questions of tax (which are within our
jurisdiction), this is private, civil matter between you and
the contractor, within the jurisdiction of the Texas court
system. You may wish to consider consulting a private
attorney for further information in that area.

This opinion is based on the facts presented. Different or
additional facts may change the opinion. 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