Could a private Texas engineering contractor buy equipment and materials tax-free merely because it used them on federal-government contracts?

Plain-English summary

A private company bought equipment and materials to perform nontaxable environmental-engineering services under federal-government contracts. The Comptroller said the company was the consumer of the items used to provide those services and owed Texas sales or use tax on its purchases. Its federal customer did not make the private company an exempt entity.

Items actually sold directly to the federal government could be bought tax-free for resale. The letter required both title to and possession of an item to pass directly to the federal government for that treatment.

What this means for you

Under this 1991 letter, using equipment or supplies to fulfill a federal service contract was different from selling those items to the federal government. The contract and delivery facts had to show a direct transfer of title and possession before resale treatment applied.

Common questions

Were items consumed while providing engineering services taxable? Yes. The private service provider was treated as their consumer.

Did contracting with the federal government exempt the private provider? No.

When could an item be bought tax-free for resale? When it was actually sold directly to the federal government and both title and possession passed directly to the government.

What if the contract's transfer terms were unclear? The letter invited the requester to submit a contract copy to the Comptroller for review.

Citations and references

The letter did not cite a numbered 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/9103L1099F10

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

JOHN SHARP
Comptroller March 29, 1991

Dear **:

Thank you for your letter concerning equipment and materials purchased to
complete contracts with the federal government for "environmental engineering
services."

Equipment and materials that ** purchases to provide nontaxable
engineering services for the federal government are taxable to *.
The provider of a nontaxable service is considered the consumer of all items
used to provide the service. *** is not an entity that qualifies for
exemption from payment of Texas sales or use tax due on items that it purchases
for use.

However, items which are actually sold directly to the federal government
may be purchased tax free for resale. The item will be considered sold to the
federal government only if title to and possession of the item passes directly
to the federal government. If there is any question as to whether the items are
sold to the federal government or not, you may submit a copy of the contract to
the Comptroller's office for review.

This opinion is based upon the facts you presented. If there are
additional or different facts, this opinion may change.

Please feel free to contact me if you have any additional questions. You
may write me, call toll free 1-800-252-5555 from anywhere in the United States
or phone 512/463-4600.

Sincerely,
Julie Pesl
Tax Administration Division