Texas Letter Ruling 9406L1313G06: Copies — Professionals (Lawyers/Architects/Engineers/Accountants) Purchasing Photocopies For Transfer To Clients As Part Of Nontaxable Services — No Resale/Exemption Certificate Allowed

Plain-English summary

An architect had accepted an exemption certificate from a client, claiming that the printing and plotting services the architect purchased were exempt because they would ultimately be reimbursed by an exempt entity (a government body, public school, church, etc.). The person who received that certificate wrote to the Comptroller asking whether it was valid. The Comptroller's answer: it is not.

The letter explains that professionals such as lawyers, engineers, and architects provide a nontaxable professional service, even when tangible personal property — copies, legal documents, blueprints — passes to the client as part of that service. That stays true even if the professional separately states the charge on the client's bill or marks it up above the professional's own cost. Because the underlying transaction with the client is a nontaxable service, the professional is not required to hold a sales tax permit or collect tax on those incidental items, but the flip side is that the professional also cannot give a resale certificate when buying those items from a vendor (like a print or plot shop) — resale certificates are only for people who are reselling taxable items, not providing a nontaxable service that happens to include some tangible property.

This rule applies no matter who the professional's client is. A client's own tax-exempt status does not transfer to the professional's purchases, because the professional and the client are not engaged in a sale of the copies themselves — they're engaged in a nontaxable professional service, and the professional is simply the one who bought the copies to use in providing it. So the professional must pay tax on those purchases regardless of whether the ultimate client is exempt or not. If a client requires the professional to itemize actual costs for reimbursement purposes, the tax the professional paid is a real cost of doing business, and the letter suggests professionals can label that pass-through charge as "tax reimbursement" or "reimbursement of tax" so they don't appear to be collecting sales tax (which they're not allowed to do) on a nontaxable service. If a client truly wants to buy copies tax-free using its own exempt status, the letter suggests the client purchase the copies directly from the printer itself, since a vendor can accept an exemption certificate from an exempt entity when the item is billed to and paid by that exempt entity directly — but not when a taxable professional intermediary is billed and later reimbursed.

The letter also addresses a related question the taxpayer raised: whether an August 1993 "Tax Policy News" article about contractor exemptions for improving realty of exempt entities could apply here. The Comptroller says no — a contractor is someone who incorporates tangible personal property into real property, and an architect or engineer providing professional services is not a contractor. Also, blueprint copies are not consumed or destroyed in a single use at a job site the way, say, a contractor's disposable supplies might be, so they don't qualify for any consumable-supplies exemption either.

What this means for you

Lawyers, architects, engineers, and accountants

If you buy photocopies, blueprints, plots, or similar tangible items and pass them to clients as part of a professional service you provide, you owe sales tax on those purchases yourself. You cannot give your vendor (the copy shop or plotting service) a resale certificate, and it does not matter whether your client is a government agency, school, church, or other tax-exempt organization — their exempt status does not extend to your own purchases. If your engagement requires you to bill clients for actual costs including tax, consider labeling that line item "tax reimbursement" rather than "sales tax," since you are not collecting sales tax on the underlying (nontaxable) service.

Vendors serving professional-service clients (print shops, plotting/blueprint services)

You should not accept a resale certificate or an exemption certificate from a lawyer, architect, engineer, or accountant claiming the copies will ultimately be reimbursed by an exempt organization. That reimbursement arrangement does not create a valid exemption. You can, however, accept a proper exemption certificate directly from the exempt entity itself if that entity is the one being billed and paying for the copies directly.

Tax-exempt organizations (governments, schools, churches, etc.) that hire professionals

If you want your copies, blueprints, or similar printed materials purchased tax-free using your organization's exempt status, arrange to purchase those items directly from the printer or plotting service and have your organization billed and pay for them directly — rather than having your professional (architect, lawyer, etc.) buy them and pass along the reimbursed cost, which does not qualify for exemption.

Common questions

Q: I'm an architect and my client is a public school district. Can I use their tax-exempt status to buy blueprints and plots tax-free since I'll bill the district for the exact cost?
A: No. The district's exempt status only applies to purchases the district itself makes directly. When you buy the copies and later get reimbursed, you are the purchaser, and you owe sales tax on that purchase regardless of your client's exempt status.

Q: If I pay sales tax on copies I buy for a client and then bill the client for that cost, am I collecting sales tax from the client?
A: No — you're providing a nontaxable professional service, so you shouldn't represent the charge as sales tax you're collecting. The letter suggests labeling it "tax reimbursement" or "reimbursement of tax" to reflect that it's a pass-through of a real cost you incurred, not tax you're collecting on a sale.

Q: Does it matter if I separately state the cost of the copies on my client's invoice, or mark up the price above what I paid?
A: No. Separately stating the charge or marking it up doesn't change the analysis — you are still providing a nontaxable professional service, so you still owe tax on your own purchase of the copies and still cannot give a resale certificate.

Q: Can I use the exemption described in the August 1993 "Tax Policy News" article about contractors improving exempt entities' real property?
A: No. That exemption applies to contractors who incorporate tangible personal property into realty. An architect or engineer providing professional services is not a contractor, and copies of blueprints are not consumed or destroyed in a single use, so they don't qualify under that exemption either.

Citations and references

• 34 Tex. Admin. Code Rule 3.1 (STAR letter reliance rules, referenced in the standard disclaimer)
• 34 Tex. Admin. Code Rule 3.10 (STAR letter reliance rules, referenced in the standard disclaimer)

Note: the original 1994 letter itself does not cite a specific Tax Code section or Comptroller rule number for its holding on professional services and resale certificates; it states the policy directly based on the nontaxable nature of professional services and references an August 1993 "Tax Policy News" article (not independently retrievable here) regarding a distinct contractor exemption that the letter concludes does not apply.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9406L1313G06

Original ruling text

June 23, 1994

Dear **:

Thank you for your June 22, 1994, letter concerning an exemption
certificate that you received from an architect.

The reason for exemption on the certificate states that printing
and plotting services purchased by the architect are reimbursable by an exempt
entity (government, public school, church, etc.). This is not a valid
exemption.

Professionals, such as lawyers, engineers, architects, etc., are
providing nontaxable professional services even if they provide some tangible
personal property (copies, legal documents, blueprints, etc.) to their clients
as part of their professional service. This is the case even if the charges are
separately stated to the client and/or marked up from the original cost. They
are not required to hold a sales tax permit or collect tax on these items
transferred to the customer as part of their professional service. They cannot
give a resale certificate for such purchases.

These professionals should pay tax when purchasing these items
regardless of who their clients may happen to be. Clients with an exempt status
and clients without an exempt status are buying the same nontaxable service
from the professional. If professionals are required by their clients to show
actual costs for reimbursement, the tax paid on these items is in fact a cost
to the professional. To avoid collecting tax in error on a portion of a
nontaxable service, the professional should show the cost of the tax as "tax
reimbursement" or "reimbursement of tax." Professionals who have clients that
have exempt status may suggest their exempt clients purchase copies directly
from a printer in order to purchase tax-free. A vendor can accept an exemption
certificate from an exempt entity if the taxable item is billed to and paid by
the exempt entity. No such exemption exists for a professional who is
reimbursed by an exempt entity and an exemption certificate cannot be given by
a professional who makes such purchases.

The copy of the article from the August 1993 "Tax Policy News"
concerns exemptions available to contractors who improve the realty of exempt
entities. A contractor is a person who incorporates tangible personal property
into realty. An architect or an engineer providing nontaxable professional
services is not a contractor. In any case, copies of blueprints are not used up
or destroyed when used once for their intended purpose. They are not completely
consumed at the job site and do not qualify for exemption.

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

You may call me toll free at 1-800-531-5441, ext. 5-0030. The
direct line is 512/475-0030. You may also write to Tax Administration,
Comptroller of Public Accounts.

Sincerely,

David Somerville
Tax Administration Division

NOTE: Previous Accession Number 9406532L