My form-work company buys plywood that's used up on jobsites for exempt organizations -- can I buy those materials tax free or get a refund of the tax I paid?

Subject

Concrete Construction Forms Work — Nontaxable Service Provider Cannot Purchase Materials/Plywood Consumed At Jobsite Tax Free — Even If Job Is For Exempt Organizations

Plain-English summary

A company that does form work for site-cast concrete projects -- providing field labor to erect and remove forms and supporting centering materials, resulting in a customized forming package for a project -- asked the Comptroller whether it could get a refund of sales tax it paid on plywood and other materials that are entirely consumed at the jobsite, at least for jobs performed for tax-exempt organizations. The company had been issuing exemption certificates to its vendors for exempt-organization jobs, but for jobs where it bought materials used on both taxable and exempt projects, it paid tax to its vendors and wanted to know if it could instead take a credit on its Texas sales and use tax report.

The Comptroller explained that contractors can indeed buy tax free certain materials that are entirely consumed in performing a contract to improve realty for an exempt organization -- but only if they qualify as a "contractor" under the sales tax law, meaning someone who improves real property and, in doing so, incorporates tangible personal property into the property being improved. This company's form work does not incorporate any tangible personal property into the realty -- the forms and materials are used to shape the concrete and then removed -- so the company is classified as a provider of a nontaxable service, not a contractor. Nontaxable service providers must pay sales tax to their vendors on all materials, supplies, and equipment used in performing the service, even when the underlying job is for an exempt organization. As a result, the company was not eligible for a refund.

What this means for you

Form-work and similar construction-service companies

If your work involves setting up, using, and then removing materials (like concrete forms) without leaving any of that tangible personal property incorporated into the finished real property, you are likely treated as a nontaxable service provider rather than a contractor -- regardless of who your customer is. That means you pay sales tax on your materials, supplies, and equipment just like any other consumer, and you cannot use an exemption certificate or claim a refund based on your customer's exempt status.

Contractors who do incorporate materials into realty

The tax-free purchase option for materials consumed in an exempt organization's improvement job is only available to contractors as defined by the sales tax law -- those who actually incorporate the tangible personal property into the real property being improved. If you don't incorporate materials into realty, this exemption path does not apply to you.

Accountants and tax professionals

The classification turns entirely on whether tangible personal property is incorporated into realty, not on the customer's tax-exempt status or on which party ends up bearing the economic cost of the materials. Advise clients doing form work, scaffolding, or similar temporary-use services that their exempt-organization customers' status does not change their own tax liability on consumed materials.

Common questions

Q: Can a form-work contractor buy plywood tax free if the job is for a tax-exempt organization?
A: No, per this letter -- because the company does not incorporate the plywood into the real property (it's consumed/removed at the jobsite), it is a nontaxable service provider, not a contractor, so the tax-free purchase option for exempt-organization improvement jobs does not apply.

Q: What's the difference between a "contractor" and a "nontaxable service provider" for this purpose?
A: Per this letter, a contractor is someone who improves real property and incorporates tangible personal property into the property being improved. A business that provides labor and materials that are used and then removed (not incorporated into the realty) is instead a nontaxable service provider.

Q: Can the company get a credit or refund for the sales tax it already paid to its vendors on consumed materials?
A: No -- the letter states the company is not eligible for a refund of tax paid on these materials, because nontaxable service providers must pay sales tax on all materials, supplies, and equipment they use in performing their service.

Citations and references

No specific statutes or administrative rules were cited by section number in this letter; it applies the general sales tax law distinction between a "contractor" (who incorporates tangible personal property into realty) and a provider of a nontaxable service.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9604L1404D08

Original ruling text

April 18, 1996

Dear ***:

Thank you for your letter requesting information on procedures for obtaining a
refund of sales and use tax paid on purchases used in jobs for exempt
organizations.

You explained that your company does form work for site-cast projects,
providing field labor services for the erection and removal of forms and
supporting centering materials resulting in a complete forming package
customized for a project. When purchasing materials for jobs for exempt
organizations, you issue an exemption certificate to your vendors. Your
question arises when you purchase materials (i.e., plywood that is entirely
consumed at the jobsite) for both taxable and exempt jobs. Because you pay
tax to the vendor, you asked if you can take a credit on your Texas sales and
use tax report.

You are correct in stating that contractors can purchase tax free certain
materials that are entirely consumed in the performance of a contract to
improve realty for exempt organizations. However, the sales tax law defines
a contractor as a person who makes an improvement on real property and who,
in making the improvement, incorporates tangible personal property into the
property being improved.

Your company is considered a provider of a nontaxable service rather than a
contractor improving realty because it does not incorporate tangible personal
property into realty. Nontaxable service providers must pay sales tax to
their vendors on all materials, supplies, and equipment they use in performing
their service. This is true even if the service is performed for an exempt
organization. Therefore, you are not eligible for a refund of tax paid on
these materials.

I have enclosed edited copies of two administrative hearings decisions that
you may find helpful. They address the sales tax responsibilities of
form-work companies.

I hope this satisfactorily answers your questions. Should you require
additional information, please feel free to call Gilbert Zamora of the Tax
Policy Division toll free at 1-800-531-5441, extension 3-4502. His direct
line is 512/463-4502.

Sincerely,

Karey W. Barton, Manager
Tax Policy Division

NOTE: Previous Accession Number 9604136L