A precast concrete contractor asked how Texas sales and use tax applies to lump-sum vs. separated contracts, to precasters who don't erect their products on site, and to hauling/delivery charges for the concrete components.

Plain-English summary

A contractor using the "precast" method of building large concrete structures asked the Comptroller how Texas sales and use tax applies to (1) lump-sum vs. separated contracts, (2) precasters who don't erect the concrete structure on the job site, and (3) charges for hauling the precast components to the job site.

Lump-sum vs. separated contracts (Tax Code § 151.056): A "contractor" is a person who improves real estate and, as a necessary or incidental part of that service, incorporates tangible personal property into the customer's property (this includes subcontractors but not material men and suppliers). Texas splits contractors into two tax treatments:

• Lump-sum contract (one price covering both the service and the materials): the contractor is the consumer of the materials. The contractor pays tax on the purchase price of the materials (including in-bound freight) but does not collect tax from the customer on any part of the lump-sum charge.
• Separated contract (separate stated amounts for the service and for the materials): the contractor is the seller of the materials and must collect tax from the customer. Tax applies to the greater of (a) the materials' price as stated in the contract, or (b) the price the contractor paid for the materials.

Precasters who don't erect on site: The key issue is whether the person is actually improving real property. A precaster who does not incorporate its products into real property is not acting as a "contractor" — it is treated as a material supplier (this is the same result under 34 Tex. Admin. Code § 3.291, the contractors rule).

Hauling/delivery charges (Tax Code § 151.007(a)(3)): Transportation charges are part of the taxable selling price of the property. So:

• If the person is a material supplier, or a contractor under a separated contract, they are a seller of the tangible personal property, and any delivery/hauling charges are taxed the same way the property itself is taxed.
• If the person is a contractor under a lump-sum contract, they are the consumer of the materials — they pay tax (including on in-bound freight) when they buy the materials, but they do not separately collect tax on delivery as part of the lump-sum charge to the customer.

What this means for you

Precast concrete and other contractors

Whether you collect sales tax on delivery/hauling charges to the job site depends entirely on how your contract with the customer is structured. A single lump-sum price for labor and materials makes you the consumer of the materials (you pay tax up front, including on freight-in, and don't collect tax from the customer). Separately stating a price for materials makes you the seller of those materials, and delivery charges become taxable along with the materials themselves.

Precasters and material suppliers who don't erect their own products

If you manufacture precast components but someone else installs/incorporates them into real property, you are likely a material supplier rather than a "contractor" for sales tax purposes — meaning your hauling and delivery charges are taxable as part of your selling price, regardless of how your contract is worded.

Accountants and tax professionals structuring construction contracts

This letter is a clean illustration of how Tax Code § 151.056's lump-sum/separated distinction flows through to Tax Code § 151.007(a)(3) transportation charges — the same delivery charge can be taxable or non-taxable to the customer purely based on contract structure and whether the biller is acting as consumer or seller of the materials.

Anyone relying on this letter

This is a fact-specific 1992 letter ruling. It legally binds only the taxpayer who requested it, and the Comptroller expressly noted that other facts, though similar, may yield different results.

Common questions

Q: Does a contractor collect sales tax on delivery charges under a lump-sum contract?
A: No. Under a lump-sum contract, the contractor is the consumer of the materials, pays tax on their purchase price (including in-bound freight), and does not collect tax on any part of the lump-sum charge to the customer — including delivery.

Q: Does a contractor collect sales tax on delivery charges under a separated contract?
A: Yes. Under a separated contract, the contractor is the seller of the materials and must collect tax on the materials portion; delivery/hauling charges are taxed the same way as the materials, since transportation charges are part of the taxable selling price under Tax Code § 151.007(a)(3).

Q: Is a precaster who doesn't erect the concrete structure on the job site still a "contractor" for tax purposes?
A: No. The key issue is whether the person actually improves real property. A precaster who doesn't incorporate its products into real property is treated as a material supplier, not a contractor.

Q: What's the tax base when a separated contract states a materials price?
A: Tax applies to the greater of the materials price stated in the contract or the price the contractor actually paid for the materials.

Q: Can I rely on this 1992 letter for my own precast concrete or hauling arrangement?
A: No. This opinion was based on the specific facts presented to the Comptroller, other facts (even if similar) may yield a different result, and only the original requesting taxpayer may rely on it for detrimental-reliance purposes.

Citations and references

• Tex. Tax Code § 151.056 (contractors: lump-sum vs. separated contracts)
• Tex. Tax Code § 151.007(a)(3) (transportation charges as part of selling price)
• 34 Tex. Admin. Code § 3.291 (Contractors 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/9207L1181E08

Original ruling text

July 1, 1992

Dear **:

Thank you for your recent letter which is restated in part with responses
below.

Question: How does Texas treat a contractor who uses the "precast" method of
constructing large concrete structures for sales and Use Tax purposes?

Response: "Contractor" means a person who makes an improvement on real estate
and who, as a necessary or incidental part of the service, incorporates
tangible personal property into the property improved. The term includes
subcontractors but does not include material men and suppliers.

Tax Code section 151.056 distinguishes contractors into two groups as follows:

(a) A contractor is the consumer of tangible personal property furnished by him
and incorporated into the property of his customer if the contract between the
contractor and his customer contains a lump-sum price covering both the
performance of the service and the furnishing of the necessary incidental
material.

(b) A contractor is the seller of tangible personal property furnished by him
and incorporated into the property of his customer, from whom he shall collect
the tax, if the contract between the contractor and his customer contains
separate amounts for the performance of the service and for the furnishing of
the necessary incidental material. The tax rate is applied to the price of the
materials as agreed in the contract or the price of the materials to the
contractor, whichever is the greater.

I am enclosing a copy of Texas Tax Code Section 151 along with a copy of Rule
3.291 regarding contractors for your reference.

Question: Does it make any difference for sales and Use Tax purposes whether
the "precaster" erects or does not erect the concrete structure on the job site
in Texas? If it makes a difference, please explain why and what is the
difference in the treatment of such precasters?

Response: The key issue is improvement of real property. If an individual is
not responsible for improving realty, he or she is not considered a contractor.
Precasters who do not actually incorporate their products into real property
are treated as material supplies. The authority for such treatment is in Rule
3.291.

Question: Does Texas apply its sales or Use Tax to the cost of "hauling" the
components from the "precaster's" plant to the job site? Does it make any
difference whether the precaster erects or does not erect the concrete
structure on the job site, as to whether their "hauling" charges are taxed or
not?

Response: According to Tax Code section 151.007 (a) (3), charges for the
transportation of tangible personal property are part of the selling price of
the product. When an individual is acting in the capacity of either a material
supplier or a contractor acting under a separated contract, he or she is a
seller of tangible property. Any charges for the delivery of that property are
subject to tax in the same manner as the property itself. When an individual
acts as a contractor under a lump-sum contract, he or she is considered the
consumer of the property incorporated into the customer's realty. The
contractor must pay tax on the purchase price of the materials, including any
in-bound freight. But, the contractor is not required to collect tax on any
part of the lump-sum charge to the customer.

This opinion is based on the facts you presented. Other facts, though similar,
may yield different results.

If you have questions or need more information, please call or write. You may
reach me by calling toll free, (800) 531-5441. My direct line number is (512)
463-4680. The number for FAX transmissions is (512) 475-0900. You may write to
me in care of Tax Administration Division.

Sincerely,

Al Van Allen
Tax Administration Division