Could a contractor claim an exempt-entity construction exemption for an airport hangar expanded primarily for a private nonexempt user's benefit?

Plain-English summary

The Texas Comptroller said the airport-hangar expansion was not an exempt contract. The letter relied on Texas Attorney General Opinion MW-94, which said contractors improving real property owned by an exempt entity could not claim exemption for job materials and supplies when the improvement primarily served a nonexempt entity.

The Comptroller also said that this type of contract had not been exempt when the Airport Board issued the bid specifications. As a result, the exemption certificate could not have been given or accepted in good faith.

What this means for you

Ownership by an exempt entity did not control by itself. The primary use and benefit of the improvement mattered, and a certificate could not create an exemption that the underlying contract did not support.

Common questions

Was exempt ownership of the airport property enough? No.

Why was the project not exempt? The improvement was for the primary use and benefit of a private nonexempt entity.

Could the exemption certificate be accepted in good faith? The Comptroller said no under the stated circumstances.

Citations and references

• Texas Attorney General Opinion MW-94 (December 5, 1979) — cited for improvements to exempt-owned realty primarily benefiting a nonexempt entity.
• Comptroller Rule 3.291(c)(1), effective December 31, 1980 — cited on good-faith use and acceptance of the exemption certificate.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8703L0800B11

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TX 78774

BOB BULLOCK
Comptroller March 18, 1987

Dear *:

Thank you for your letter of February 25, 1987, concerning tax on a
contract to expand the ** hanger at the *****
Airport.

In Attorney General's Opinion MW-94, issued December 5, 1979
the Attorney General ruled that contractors improving real
property owned by an exempt entity for the primary use and benefit of a
nonexempt entity are not entitled to claim exemption from tax on
materials and supplies used on that job.

Unfortunately, when the ** Airport Board issued
the bid specifications, this type of contract was not an exempt
contract and had not been exempt for several years.

The exemption certificate could not have been given or accepted in good
faith. (See Rule 3.291 (c)(1) Effective 12-31-80 enclosed).

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 me at
1-800-252-5555 toll free from anywhere in Texas. The regular number is
512/463-4600. You may write me at the Tax Administration Division.

Sincerely,

Adina Whittemore
Tax Policy Section
Tax Administration Division