How did Texas treat separately invoiced freight for purchased and leased construction forms under a contract signed before October 2, 1984?

Plain-English summary

The Texas Comptroller reevaluated freight on purchased and leased custom construction forms under a separated construction contract signed before October 2, 1984.

For purchased forms, title passed at the seller's place of business, the shipping terms were FOB the seller's location, and transportation was invoiced separately. The Comptroller said that freight was not subject to sales tax.

For leased forms outside the purchase order, the contractor could issue a prior-contract exemption certificate for the separately invoiced transportation charge, applying the rules in effect before October 2, 1984. The letter clarified that the prior-contract exemption expired September 30, 1987.

What this means for you

The first answer depended on the FOB-origin terms and separate freight invoice. The second depended on a temporary historical prior-contract provision that has long expired.

Common questions

Was separately invoiced freight on the purchased forms taxable? No, under the stated FOB seller's-location terms.

Could leased-form freight use the prior-contract certificate? Yes, under the pre-October 2, 1984 rules.

When did the prior-contract exemption expire? September 30, 1987.

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/8703L0802D13

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller March 27, 1987

Dear ***:

This letter is in response to your request for a re-evaluation of our
response to you (STAR 8702L0796A01) concerning a prior contract exemption on transportation
charges incurred during the performance of a contract entered into prior
to October 2, 1984.

The following represents our policy committee's evaluation of your
questions.

You indicated in your letter that CONTRACTOR A, a general building con-
tractor, has entered into a contract with a property owner for construc-
tion of improvement to realty. This contract is a separated contract
with a guaranteed maximum price. CONTRACTOR A holds a Texas sales tax
permit and remits tax on incorporated materials on behalf of the prop-
erty owner. Tax applicable to non-incorporated materials is paid
according to Texas statute. The contract between CONTRACTOR A and
property owner was executed prior to October 2, 1984. A ruling is
requested based on the following:

CONTRACTOR A has awarded a purchase order to CORP ABC for the purchase
of custom jump forms. This material is classified as non-incorporated
materials and sales tax is included in the purchase order amount and
will be paid directly to CORP ABC. The purchase order indicates that
freight is not included as part of the contract amount and title of
material passes at the seller's place of business. CORP ABC bills
CONTRACTOR A for two separate charges. One invoice is for material
and a second invoice covers freight charge. Both invoices are payable
to CORP ABC although an independent trucking company is utilized. A
copy of CORP ABC contract is attached for your convenience.

Question 1: Since CONTRACTOR A has a contract with the property owner
signed prior to October 2, 1984 and the freight is billed as a separate
charge, is the freight taxable if CONTRACTOR A issues a prior contract
exemption certificate to CORP ABC?

Answer: Since the shipping terms between CONTRACTOR A and CORP ABC are
FOB seller's location and the transportation is invoiced separately, the
transportation is not subject to sales tax.

Question 2: CORP ABC also leases forms to CONTRACTOR A which are not in-
cluded in the purchase order agreement. CORP ABC invoices CONTRACTOR A
for the lease and a separate invoice is submitted for the transportation
charge. A prior contract exemption certificate has been issued. Is the
transportation charge taxable?

Answer: CONTRACTOR A will be allowed to issue a prior contract exemption
certificate on the transportation charges. The rules in effect prior to
October 2, 1984 will apply.

Question 3: Will the transportation charge be taxable after October
2, 1987? The prior contract exemption certificate statute will expire
at that time.

Answer: The prior contract exemption expires on September 30, 1987.

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,
F. Wayne McDonald
Tax Policy Section
Tax Administration Division