Were design work, contract blueprints, and separately sold extra blueprint copies taxable in Texas?

Plain-English summary

The firm performed design work and prepared specifications and blueprints. Its contract price included a stated number of copies, while customers could order additional copies at reproduction cost.

The Comptroller treated the design work, specifications, and included blueprints as nontaxable professional services. The firm was the consumer of taxable items used to provide those services and had to pay tax when purchasing them, even when its client was tax-exempt.

Copies sold beyond the contract quantity were taxable sales. The firm could buy the printing and components for those extra copies tax free with a resale certificate, then collect tax from the client unless the sale qualified for an exemption. The letter recognized exemptions for sales to the federal government, qualifying exempt organizations with the required documentation, and copies mailed or delivered out of state with supporting shipping records.

The Comptroller also said a firm selling extra copies needed an active sales-tax permit and had to file returns for each reporting period.

Common questions

Were design services taxable? No.

Were blueprint copies included in the contract taxable? No. They were part of the nontaxable professional service described in the letter.

Were extra copies taxable? Yes, unless the particular sale qualified for exemption.

Could supplies for extra copies be bought for resale? Yes. The printing and components could be purchased under a resale certificate.

What supported an exempt sale? The federal contract, an exempt organization's completed exemption certificate, or shipping records for out-of-state delivery, depending on the exemption claimed.

Citations and references

The reproduced letter does not cite a statute or rule number.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8603L0713B11

Original ruling text

March 20, 1986

Dear ***:

Thank you for your letter of March 12, 1986, providing additional
information about your sales tax refund request to CORP Z.

As I understand from your letter and our telephone conversation. CORP X
(***) performs design work and prepares specifications and
blueprints for clients, predominantly health facility clients. The
contract provides that a certain number of copies will be provided by
CORP X under the contract price. The client may request additional
copies for which CORP X bills the client the cost price of reproduction.

Performing design work and preparing specifications and blueprints are
professional services. The charge to your client is not taxable. All
taxable items used in providing the non-taxable service aretaxable to
CORP X at the time of purchase. Sales tax exemption cannot be claimed
on these purchases even though your client may have exempt status for
Texas sales tax purposes.

The additional copies (over and above those provided in the contract
price) provided to the client are considered sales subject to sales tax.
The printing and components of these additional copies can be purchased
tax free under a resale certificate issued to your supplier. Sales tax
must be collected from your client on the sales price unless the sale
qualifies for exemption.

The sale qualifies for exemption if the copies are sold to the federal
government or to an organization that has been issued exempt status for
Texas sales tax purposes. The contract with the federal government is
sufficient to substantiate the exemption, but a completed exemption
certificate must be obtained from the exempt organization. Another basis
for exemption is when the copies are mailed or delivered to the client
out-of-state. Shipping documents must be maintained in your files to
substantiate the reason the Texas tax was not due.

Our records show that CORP X was issued a sales tax permit effective
November 5, 1979 but the permit was placed inactive June 30, 1980. If
CORP X is selling additional copies, a sales tax permit must be obtained
and returns must be filed each reporting period.

I am enclosing an application for permit and several rules about the
sales tax.

I am returning your invoice copies that were received from CORP Z in the
event you need any for obtaining a refund.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

If you have any questions or need more information, please call us at
1-800-252-5555 toll free from anywhere in Texas. You may write us at the
Tax Administration Division.

Sincerely,

Tax Policy
Tax Administration Division