A contractor's earlier ruling exempted consumable supplies (sandpaper, saw blades, rags, tape, cleaning products) used in remodeling work for tax-exempt entities — does the same exemption apply when the contractor does identical remodeling work for a commercial business like a retail store or restaurant instead?

Note: the "ALERT" line at the top of the original text pointing to Rule 3.285 (amended 11/01/2017) is a STAR-added cross-reference to current guidance, not part of the original October 1999 letter.

Plain-English summary

A remodeling contractor had previously received a ruling (letter #9703345L, referenced but not reproduced here) confirming that certain consumable job supplies used while remodeling realty for tax-exempt entities were exempt. The contractor asked whether the same exemption extends to remodeling work for commercial, non-exempt customers — retail space or restaurants — since the physical supplies used are identical.

The answer is no. The exemption in Tex. Tax Code § 151.311 (discussed in the prior letter) is limited solely to items used improving realty of an exempt entity. When the contractor does the same type of remodeling for a commercial customer, its purchases of consumable supplies used in the job but not incorporated into the customer's realty or transferred to the customer's care, custody, and control — sandpaper, saw blades, poly sheeting, cleaning rags, masking tape, paint stripper, cleaning products — are taxable to the contractor. This is true even though the entire charge for the remodeling work is separately taxed to the customer — there's no double-tax relief here, and the contractor cannot give a resale certificate for these supplies. The fact that the items are consumed during the job (not available for reuse on a future project) does not make them exempt either — consumption is not the test; transfer of custody/control to the customer is. The letter flags one nuance: some items, like wax applied by a janitorial service to a floor, ARE considered transferred to the customer as part of the taxable service (and thus can be treated differently) — the consumables at issue here (sandpaper, rags, tape, etc.) don't fall into that category.

What this means for you

Remodeling and repair contractors working for commercial (non-exempt) customers

Pay tax on your own consumable job supplies (sandpaper, blades, rags, tape, cleaning products) even though you separately charge your commercial customer tax on the whole job — you can't avoid this by giving a resale certificate, and the fact the supplies get used up doesn't create an exemption. This is the opposite of the treatment available when the same type of job is done for a tax-exempt entity's property.

Contractors who also do exempt-entity work

Keep the two customer types analytically separate: consumable supplies exemption under § 151.311 turns entirely on whether the customer is a tax-exempt entity, not on the nature of the supplies or the type of remodeling work performed.

Accountants and tax professionals

Watch for the narrow "transferred to customer" exception (like wax applied to a floor) — some consumables genuinely do transfer to the customer as part of a taxable service and may be treated differently than one-time-use job supplies like sandpaper or rags that stay with the contractor's own cost structure.

Common questions

Q: Are consumable job supplies like sandpaper and rags exempt when remodeling for a commercial customer?
A: No — they're taxable to the contractor, unlike the same supplies used remodeling for a tax-exempt entity's property.

Q: Does it matter that the customer is separately taxed on the whole remodeling job?
A: No — the contractor still owes tax on its own consumable supplies regardless of the tax charged to the customer on the overall job.

Q: Does the fact that supplies get used up (not reusable) make them exempt?
A: No — consumption during the job doesn't create an exemption; the exemption under § 151.311 depends on whether the customer is a tax-exempt entity.

Q: Can a contractor give a resale certificate for these supplies?
A: No — a resale certificate may not be given for these consumable supplies.

Q: Can another contractor rely on this letter?
A: Only the taxpayer who requested it can use it for detrimental reliance, and it specifically distinguishes this contractor's prior letter (#9703345L) about exempt-entity work, which remains accurate for that different fact pattern.

Citations and references

Statutes:

• Tex. Tax Code § 151.311 — exemption limited to items used improving realty of an exempt entity (referenced from the contractor's prior letter #9703345L, not reproduced here)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9910833L

Original ruling text

ALERT: For specific guidance relating to the care, custody and control of TPP when providing a taxable service, please see Rule 3.285, Resale Certificates; Sales for Resale (amended 11/01/2017.

October 26, 1999

Thank you for your recent e-mail.

You have received a copy of #9703345L. While this document
addresses most of the supplies you were questioning, it is qualified in the
first sentence by "exempt entities". The remodeling work that you do is not
for exempt organizations, but for commercial enterprises such as retail space
or restaurants. You ask if the same rules apply to this type of work also?

Response. No. The exemptions in Texas Tax Code Section 151.311 (quoted in the
above document) are limited solely to items used for improving realty of an
exempt entity. Your purchases of certain consumable supplies that are used in
a taxable remodeling job but not incorporated into your customer's realty or
transferred to their care, custody and control (such as sandpaper, saw blades,
poly sheeting, cleaning rags, masking tape, paint stripper, cleaning products)
are taxable to you even though the entire charge for your work is taxed to your
customer. A resale certificate may not be given. The fact that the items are
consumed during the job and are not available for continued use on another
project does not cause these items to become exempt. You are not entitled to a
credit for sales tax paid on these items when they were purchased. Please note
that some items such as wax applied by a janitorial service to the floor are
considered transferred to the customer as part of the taxable service.

Several publications and other items of interest (including the Texas Tax Code
and forms) are also available on our web page .

This opinion is based on the facts presented. Different facts though similar,
may result in different answers. If you have any questions or need more
information, you may call me toll free at 1-800-531-5441, extension 5-0613.
You may also write to Tax Policy Division, Comptroller of Public Accounts, Post
Office Box 13528, Austin, Texas 78711.

Kevin Koller
[email protected]