Could a prestressed-concrete business claim manufacturing exemptions while acting as a lump-sum or separated contractor, and how was cement treated?

Plain-English summary

The taxpayer manufactured prestressed concrete and maintained tax-free inventory. It made outright sales, installed concrete under separated contracts, and installed it under lump-sum contracts. On lump-sum work it accrued tax on materials pulled from inventory and incorporated into the job.

The letter said the taxpayer incurred no sales-tax liability on cement incorporated into lump-sum contracts because cement was taxed under Chapter 181. For separated contracts, however, the customer's charge for cement incorporated into prestressed forms was taxable: the taxpayer sold concrete forms, not cement.

The Comptroller also said the company could not act as both manufacturer and contractor in the same transaction. It could not claim manufacturing exemptions when performing lump-sum or separated contracts. It was treated as a manufacturer only when it made outright sales.

Common questions

Was cement used in lump-sum contracts subject to sales tax? The letter said no, because cement was taxed under Chapter 181.

Was the cement component of prestressed forms under a separated contract taxable? Yes. The customer was buying concrete forms, not cement.

Could the contractor claim manufacturing exemptions on installed work? No, whether the contract was lump-sum or separated.

When could it be treated as a manufacturer? Only on outright sales.

Citations and references

• Chapter 181 — cement tax treatment identified in the letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8608L0753D01

Original ruling text

DATE: August 19, 1986
TO: Richard DuPree, ***
FROM: *****, Tax Policy
SUBJECT: CORP X

The taxpayer is a contractor who manufactures pre-stressed concrete. The
taxpayer maintains a tax-free inventory. The taxpayer either sells the
concrete outright, installed as a separated contract, or installs it as a
lump-sum contract. The taxpayer mainly, performs lump-sum contracts. On the
lump-sum contracts, the taxpayer accrues tax on the materials pulled from
inventory which are directly, incorporated into the job. The materials include
sand, gravel, aggregate, admixture and cement. The Taxpayer's job cost reports
detail this information.

Questions:

1) Is the cost of the cement incorporated into the lump-sum contracts
taxable under sales tax?

Answer: *** incurs no sales tax liability on the cement. Cement is
taxed under Chapter 181.

2) Is the cost of the cement incorporated into the separated contracts
taxable under sales tax?

Answer: The charge by *** to its customers for cement
incorporated into prestressed forms is taxable. ***** is not selling
cement but concrete forms.

3) Since the taxpayer manufactures the prestressed concrete and either
sells it outright, installs it as a separated contract or a lump-sum contract,
is the taxpayer entitled to any manufacturing exemptions?

Answer: A company may not wear two hats, that of a manufacturer and a
contractor. When *** is acting as a lump-sum or separated contractor,
they are not entitled to any manufacturing exemptions. Only when they make
outright sales can they be treated as a manufacturer.