Which materials and equipment were exempt when contractors fabricated and installed pollution-control facilities under the Clean Air Financing Act?

Plain-English summary

The Texas Comptroller clarified that the Clean Air Financing Act exemption covered the control facility, or a part of it, rather than every item used to perform the fabrication and installation contract.

Contractors could buy tax-free only materials and equipment actually installed in the facility. Tax remained due on equipment used and materials consumed while performing the contract.

The letter said Tax Code Section 151.311 did not apply because the contractors were not improving real property for the use and benefit of an exempt organization or entity.

What this means for you

Financing or constructing an exempt pollution-control facility did not exempt the contractor's own tools and consumables. The item had to become installed facility property under the cited provision.

Common questions

Were installed control-facility materials exempt? Yes.

Were contractor-use equipment and consumed materials exempt? No.

Did Section 151.311 provide the exemption? No, under the stated facts.

Citations and references

• Tex. Tax Code § 151.311 — found irrelevant because the work did not benefit an exempt entity as required.
• Article 4477-5a § 2 — cited for the control-facility exemption.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8611L0770B02

Original ruling text

November 18, 1986

Corpus Christi Audit
5430 Holly Road
Corpus Christi, TX 78411

Dear ***:

This letter is meant to clarify our position concerning contracts to
fabricate and install air pollution equipment under the Clean Air
Financing Act (ACT). There appears to be some confusion concerning the
taxability of personal property used and not incorporated in the performance
of the contract.

As I indicated to you in my memo dated August 8, 1986, Sec. 151.311 of
the Tax Code was not relevant. The contractors are not improving real
property for the use and benefit of an exempt organization or entity as
required under the statute.

Art. 4477-5a Sec. 2 provides for an exemption on the "control facilities,
or any, part thereof," and not for personal property used in the performance
of the contract. The contractor is only allowed to purchase tax free those
materials and equipment that are actually installed in the facility. Tax
is due on equipment used or materials consumed in the performance of the
contract.

I regret any confusion I caused by not expanding on the situation in my
memo and request you take any action necessary.

Please feel free to contact us if you have additional questions. You
may write us, call toll free 1-800-252-5555 from anywhere in Texas or phone
512/463-4600.

Sincerely,

Tax Administration Division