Could a purchaser obtain a tax refund by getting a seller to separate qualifying repair-part charges after an original lump-sum invoice?

Plain-English summary

This internal Comptroller memo addressed qualifying repair and replacement parts originally billed together with service in one lump sum. A refund could be allowed after the purchaser obtained a corrected bill or seller letter separating the charges, but purchaser-written notes based on a telephone call were not enough.

After-the-fact separation was permissible only when it did not change who legally owed the tax. The memo allowed it where the manufacturer was liable for tax on both parts and service and the original lump sum merely prevented allocating tax between them.

It rejected separation when it would shift liability. Under the memo's example, a lump-sum new-construction contractor was the consumer and solely liable for tax on incorporated property; converting the contract after the fact into separated charges would improperly move liability to the customer.

What this means for you

Correcting documentation could establish the amount of an exemption, but it could not rewrite the legal structure of the original transaction or transfer tax liability to someone else.

Common questions

Was a purchaser's note about a vendor phone call sufficient? No.

What documentation could work? A corrected billing or seller letter separating the charges.

When could a refund be allowed? When separating parts and labor did not shift tax liability.

Why could a lump-sum construction contract not be separated later? The change would shift liability from the contractor to the customer.

Citations and references

The memo 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/9103L1153D10

Original ruling text

Date: March 27, 1991

To: Betty Ressel, Revenue Accounting

From: Tom Soto, Tax Administration

Subject: Refunds on lump-sum v separated charges

We received a question from your section as to whether taxes can be
refunded on qualifying repair and replacement parts when the original billing
for parts and service was lump-sum, but subsequently the purchaser obtained a
break-out of the charge for the qualifying parts.

In certain cases it is permissible to refund the tax on the subsequent
break out of the parts charge. In such cases, the purchaser would be required
to obtain documentation from the seller in the form of a corrected billing or a
letter separating the charges. Notes made on the original billing by the
purchaser based on a telephone call to the vendor is not sufficient
documentation.

A refund can be allowed in situations where the tax on both the service
and parts is the liability of the purchaser (manufacturer), but because of the
lump-sum price it is not possible to determine how much of the tax is due to
the parts and how much is due to labor. Separating out the charges does not
shift the tax liability.

A refund cannot e allowed in situations where separating the charges
would shift the tax liability. Example: under a lump-sum construction contract
for a new structure the contractor is by law considered the consumer and is
solely liable for taxes on the tangible personal property incorporated into
the job. If the contract is separated, then the contractor is a seller of the
tangible personal property and must collect the tax from the customer. Separately
stating the charges after the fact would result in a shift of tax liability from
the contractor to the customer.