How did Texas tax a business that remodeled old buses into traveling vehicles and collected progress payments?

Plain-English summary

The Texas Comptroller said the total charge for converting and remodeling old buses was taxable. Paying tax on materials and issuing a lump-sum invoice did not eliminate the business's sales-tax filing and collection duties.

The converter was told to separately state sales tax to the customer, file sales-tax returns, and remit tax each reporting period. It could buy materials tax-free by giving suppliers resale certificates.

For progress payments, tax generally was remitted in the period when the business recognized the income under its accounting method. If the business collected all the sales tax at the beginning of the work, it had to remit that tax for the collection period.

What this means for you

The business was treated as making a taxable vehicle-remodeling sale, not merely consuming materials in a nontaxable service. How and when payments and tax were collected affected the reporting period, not the underlying taxability.

Common questions

Was the full bus-remodeling charge taxable? Yes.

Could materials be bought with resale certificates? Yes.

Did the business have to file sales-tax returns? Yes.

When was tax remitted on progress payments? Generally as income was recognized, unless the tax itself was collected earlier.

Citations and references

• The letter cited no numbered statute or Comptroller rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8612L0785B04

Original ruling text

December 22, 1986

Dear ***:

Thank you for your recent letter which is restated with response below.

I am trying to determine if my business is subject to state sale tax.
What my business does is to take old buses and completely rework the
inside making them into traveling buses for bands and entertainers,
complete with bars, TV, etc. Also, I rework the outside by changing
the form by using fiberglass, put on new tires, etc.

What I need to know is:

1) If I pay for the materials and pay sales tax when I buy them and
give the customer a lump-sum contract invoice price (materials and
labor included) can I not have to pay and file sales tax reports?

Response: The total charge for remodeling the vehicles is taxable. You
should separately state the charge for sales tax to your customer. You
must file sales tax returns and remit the tax each reporting period.

2) If I cannot do this and then buy the materials tax free and include
this on the contract invoice, how do I pay the sales tax when they pay
1/2 of amount before work, 1/4 during the half way point and 1/4 at the
end?

Response: You are correct to buy the materials tax free by giving your
suppliers a resale certificate in lieu of tax. You will remit tax in
the period in which you recognize the income for accounting purposes.
However, if you collect the tax at the beginning of the work, you must
remit the tax for that period.

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. The regular number is
512/463-4600. You may write us at the Tax Administration Division.

Sincerely,

Tax Policy Section
Tax Administration Division