Which purchases could federal realty-improvement contractors make tax-free in Texas after October 2, 1984?

Plain-English summary

The Texas Comptroller described an October 2 tax change for contractors improving real property for the federal government.

Machinery, equipment, and consumable supplies used by either lump-sum or separated contractors to incorporate materials into federal realty were taxable to the contractor to the extent used.

In contrast, tangible personal property that would become part of the federal government's realty after the contractor incorporated it could be purchased tax-free under both lump-sum and separated contracts.

What this means for you

Federal contractors

The federal project did not exempt the contractor's own machinery, equipment, or consumables. The exemption applied to property incorporated into the federal realty.

Lump-sum and separated contractors

The letter applied the same distinction to both contract forms.

Accountants and tax professionals

Separate incorporated property from tools, equipment, and supplies merely used to perform the work.

Common questions

Q: Could a contractor buy its project machinery tax-free?
A: No. Machinery and equipment used on the project were taxable to the extent used.

Q: Were consumable supplies taxable to the contractor?
A: Yes.

Q: Could property incorporated into federal realty be purchased tax-free?
A: Yes.

Q: Did the answer differ between lump-sum and separated contracts?
A: No. The letter applied to both.

Citations and references

• The letter identifies October 2 as the effective date of the described change but provides no year, statute, or rule number beyond the letter's 1984 context.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8411L0598A08

Original ruling text

November 12, 1984

Dear **:

** has asked me to write to you concerning recent tax
changes affecting people improving real property for the federal
government.

Effective October 2, machinery, equipment and consumable supplies
used by both lump-sum and separated contractors to incorporate
materials into an improvement to realty for the federal government
will be taxable to the contractor to the extent so used.

Tangible personal property which will be part of realty belonging
to the federal government after incorporation by the contractor may
be purchased tax free by both lump-sum and separated contractors.

Please feel free to contact me if you have additional questions. You
may write me or call toll-free 1-800-252-5555 from anywhere in Texas.

Sincerely,

Al Van Allen
Tax Administration Division