Was construction for a private golf-course lessee exempt because the city owned the land and would receive the building when the lease ended?

Plain-English summary

A contractor built a maintenance building for a golf-course operator leasing land from the City of El Paso. The city would own the building when the land lease ended.

The Comptroller denied the exempt-entity contract treatment because the contractor's prime contract was with the nonexempt golf-course operator. That operator held the leasehold interest and received the building's sole use and benefit until its lease expired.

Under a separated contract, the contractor had to collect tax on the agreed contract price for incorporated materials, could buy those materials tax-free for resale, and had to pay tax on other materials bought, leased, or rented for the job. Under a lump-sum contract, it collected no tax from the customer but paid tax on all job materials.

What this means for you

Future city ownership did not make the private lessee's construction contract exempt. The current customer and beneficiary controlled the result.

Common questions

Who owned the land? The City of El Paso.

Who contracted for and used the building? The private golf-course operator.

Did eventual city ownership create an exemption? No.

How did a separated contract work? Tax was collected on the materials price, incorporated materials could be bought for resale, and the contractor paid tax on other job inputs.

How did a lump-sum contract work? The contractor collected no customer tax and paid tax on all materials used.

Citations and references

• The letter did not cite a numbered statute, regulation, or case.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9105L1124G13

Original ruling text

May 17, 1991

Dear ***:

I apologize for the unusual delay in answering your letter.
As I understand it, your company is constructing a
maintenance building under contract with the operator of a
golf course. The golf course operator leases the land from
the City of El Paso. At the end of the lease, the city will
own the maintenance building. You asked if there was any
tax exemption available for the construction.

The exemptions for certain contracts with exempt entities do
not apply to your contract. You have a prime contract with
a non-exempt entity (the golf course operator) to construct
a building for his use on land in which he holds a leasehold
interest. He will enjoy the sole use and benefit of the
building until his golf course lease with the City expires.

Therefore, under a separated contract, you must collect tax
from your customer on the agreed contract price for
materials. You may issue a resale certificate to buy, taxfree,
materials that you will incorporate into the real
property in question. You must pay tax on all other
materials bought, leased or rented for use on this job.

Under a lump-sum contract, you will collect no tax-from your
customer on the lump-sum charge. You are responsible for
paying tax on all materials used on the job.

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
1-800-252-5555, ext. 3-3889.

Sincerely,

John Christian
Attorney
Tax Administration