A company is bidding on a multimillion-dollar heavy equipment job that will be exported to Latin America over about nine months, billed through progress payments, with a contract clause transferring title of designated goods to the customer at each progress payment. Should sales tax be charged/accrued on each progress payment and then refunded after export documentation is obtained?

Plain-English summary

A company was bidding on a multimillion-dollar job to manufacture heavy equipment for export to Latin America, a project expected to take about nine months and ship out through a Texas port. The company planned to bill the job using progress payments during construction, with a contract clause stating that whenever the customer made a progress payment, any goods already designated to the contract at that point would have title transferred to the customer.

The company asked whether it should charge/accrue sales tax on each progress payment and then, once the job was completed, exported, and proper export documentation obtained, refund the sales tax to the customer within 30 days.

The Comptroller's answer: Yes. A sale is legally completed for Texas sales tax purposes when title or possession is transferred to the customer for consideration — and under this contract, that transfer happens at each progress payment, not just at final completion or export. So tax is due (and must be charged/accrued) on each progress payment as it's made.

The letter also flagged a simpler alternative: the company could avoid the administrative burden of collecting tax on progress payments and later refunding it (once export is documented) by instead rewriting the contract so that title transfers only at the time of export — which would let the sale qualify for the export exemption from the outset rather than requiring a tax-then-refund process.

What this means for you

Manufacturers and sellers using progress-payment billing

If your contract states that title to goods transfers to the customer each time a progress payment is made, the sale (or a partial sale of the goods then-designated to the contract) is treated as completed at that moment for sales tax purposes — not deferred until the whole project is finished or shipped. Tax is due on that progress payment unless an exemption independently applies at that time.

Sellers on export contracts

Simply intending eventual export does not, by itself, prevent tax from being due on progress payments if title passes to the customer before export occurs. To claim an export exemption cleanly (rather than collecting tax and refunding it later), consider structuring the contract so title and possession transfer only at the time of export, not during the manufacturing/progress-payment period.

Contract drafters and in-house counsel

The precise language governing when title or possession transfers is what drives the tax timing — this letter shows how a single contract clause (title transfers with each progress payment) can create a tax collection obligation on interim payments that would not otherwise exist if title transfer were deferred to shipment/export.

Accountants and tax professionals

Where a client anticipates using an export exemption but is also billing via progress payments, walk through the contract's title-transfer clause specifically. A "collect now, refund later" approach is valid but creates unnecessary administrative work compared to timing title transfer to coincide with the exempt event (export).

Common questions

Q: Do I owe sales tax on progress payments, or only when the whole job is complete?
A: It depends on when title or possession transfers under your contract. If your contract transfers title to the customer with each progress payment (as in this ruling), tax is due on each payment as it's made, because the sale is legally completed at that point.

Q: We're exporting the finished product — can we just wait and get a refund after export documentation is obtained?
A: This letter confirms that approach works (charge tax on progress payments, then refund within 30 days of obtaining proper export documentation), but it also notes a simpler alternative: rewrite the contract so title transfers only at the time of export, avoiding the need to collect and later refund tax at all.

Q: What actually triggers a sale being "completed" for Texas sales tax purposes?
A: According to this letter, a sale is legally completed when title or possession is transferred to the customer for consideration.

Q: Can we just change our contract terms to reduce our tax administration burden?
A: Yes — the Comptroller specifically suggested that changing the contract to transfer title at the time of export (rather than at each progress payment) would avoid the red tape of collecting and refunding tax on interim progress payments.

Q: Can I rely on this letter for my own contract or project?
A: No. The letter states its opinion is based on the facts presented, and other facts, though similar, may yield different results. Under Texas STAR rules, a letter ruling can only be relied on as the basis for a detrimental reliance claim by the taxpayer it was issued to.

Citations and references

No specific statutes or rule numbers were cited in this letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9207L1184A01

Original ruling text

July 8, 1992

Dear **:

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

Facts: We are bidding on a multimillion dollar job for heavy equipment that
will be shipped to Latin America. This job will take about nine months to
manufacture, and then will be shipped out of the Port of **.

We will receive progress payments during construction. There will be a clause
in the contract that when the customer makes a progress payment, any goods
designated to the contract at that time will be titled to the customer.

Question: Should we be charging/accruing sales tax on each of these progress
payments, and then within 30 days after the job is completed and exported,
obtain the proper export documentation, and then issue a refund of the sales
tax to the customer?

Response: Yes. The sale is legally completed when title or possession is
transferred to the customer for consideration. You may avoid the red tape of
collecting and refunding the tax by changing the contract to transfer title at
the time of export.

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