Are single-use yellow traffic-control tabs, thrown away after 2-3 days on a state road job, exempt from sales tax as consumable supplies used in an exempt government contract?

Plain-English summary

A company doing roadwork for the State of Texas asked whether sales tax applied to its purchase of yellow tabs — placed on the road to temporarily separate traffic, left down for 2-3 days, then pulled up and discarded (never reused) once the permanent yellow stripe was painted.

The Comptroller's response was conditional rather than a flat yes or no, because a key fact was unclear from the request: whether the company was actually building/improving the road for the State, or merely providing traffic control services. Tax Code § 151.311 exempts tangible personal property purchased for use in a contract to improve realty belonging to the State of Texas — but that exemption does not apply if the company is only providing traffic control services without actually performing the underlying realty improvement.

Assuming the company qualifies as a genuine improving contractor, the tabs would still need to satisfy two more conditions to be exempt consumable supplies: they must be necessary and essential to performing the contract (whether under a lump-sum or separated contract), and they must be completely used up after a single use at the job site — which these tabs, being non-reusable and discarded after 2-3 days, appear to satisfy. If those conditions hold, the contractor may issue an exemption certificate to Texas vendors for the tabs.

What this means for you

Road construction contractors doing state highway work

Whether disposable traffic-control materials are exempt consumable supplies hinges first on your own role in the contract — genuinely improving the realty (paving, striping, etc.) versus solely providing traffic control services as a standalone service. Only the former can access the § 151.311 contractor exemption.

Traffic control companies working alongside road contractors

If your company's role is limited to traffic control services and you're not the one performing the realty improvement, this exemption likely does not apply to you, regardless of how disposable your supplies are.

Accountants and tax professionals

This letter is a good example of the Comptroller declining to give a flat answer when a threshold fact (contractor-improving-realty vs. traffic-control-service-provider) is ambiguous — worth using as a checklist before assuming a "necessary and essential, single-use" item automatically qualifies for the § 151.311 exemption.

Common questions

Q: Are single-use, non-reusable traffic control items automatically exempt on a state road job?
A: Not automatically — the requester must first qualify as a contractor actually improving realty under the contract, not merely providing traffic control services, before the "necessary/essential and completely consumed" analysis even applies.

Q: Does it matter whether the contract is lump-sum or separated?
A: Not for this threshold exemption question — the "necessary and essential to performance of the contract" and "completely used up in a single use" tests apply under either contract type.

Q: What must a qualifying contractor do to buy these supplies tax-free?
A: Issue an exemption certificate to Texas vendors for the consumable supplies purchased for the exempt job.

Q: Can any traffic-marking company rely on this exact answer?
A: Not directly, and this letter itself couldn't fully resolve the requester's own situation without more facts. This is a Texas STAR letter ruling binding on the Comptroller only for the taxpayer it addresses (34 Tex. Admin. Code Rules 3.1, 3.10); confirm your own contractual role with a tax professional.

Citations and references

Statutes:

• Tex. Tax Code § 151.311 (exemption for contractors on exempt government realty)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200010844L

Original ruling text

October 24, 2000

From: Emilio Lerma

To:

Subject: Yellow Tabs/Temporary Control of Traffic

Dear **:

I am responding to your e-mail inquiry regarding on your job for the State.

You state that you have done some roadwork for the State of Texas wherein you
put down yellow tabs on the road in order to separate the traffic. These tabs
stay on the road for 2 or 3 days and are then pulled up and yellow stripes are
painted. The tabs cannot be reused and are thrown away. You want to know if
sales tax is due on the purchase of these tabs.

The purchase of certain tangible personal property for use in a contract to
improve realty belonging to the State of Texas is exempt. I am uncertain
whether you are contractor building a road for the State of Texas. See Texas
Tax Code Section 151.311 concerning exemption for contractors. The exemption
for contractors does not apply if you are just providing traffic control
services and not actually improving realty.

The tangible personal property must be necessary and essential to the
performance of the contract (under either a lump-sum or separated contract)
and must be completely used up after a single use at the job site. The
contractor may issue an exemption certificate to Texas vendors for consumable
supplies purchased for the exempt job.

To view the Tax Code Section, please go to our web site address at:
and scroll to the
specific code section.

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

If you have any questions or require additional information, you may submit
inquiries to our tax help e-mail address at , call
1-800-531- 5441, extension 6-5809 or write to Tax Policy Division, Post Office
Box 13528, Austin, Texas 78711-3528.

Sincerely

Emilio S. Lerma
Tax Policy Division

On Fri, 13 Oct 2000 13:37:41 -0500 ** wrote:

Dear Sir or Madam,

We have done some work for the State, wherein we had to use yellow tabs on the
road. The yellow tabs must be put down in order to separate the traffic and
stay there for 2 - 3 days. At that point they are pulled up and the yellow
stripe is painted.

They cannot be re-used, therefore, they are thrown away. I feel like this
product is consumed on the project, because it simply can't be re-used again.

Can you please tell me if I am to pay sales tax on this item when I purchase
it.

I have contacted the ** office, and I was advised to contact you.
Please let me hear from you.

**/COMPANY A