Could sales tax be refunded or removed from a construction debt when the purchaser never issued an exemption certificate and a bonding company later assumed the debt?

Plain-English summary

A construction company never issued the seller a properly completed exemption certificate. The Comptroller therefore said sales tax was due and could not be refunded by the agency.

A bonding company had assumed the construction company's debts. The letter said the bonding company should pay the sales tax to the seller and had no basis to delete it, because the bonding company did not have a contract with the exempt entity and could not claim exemption on that basis.

The only acceptable proof of exemption was a properly completed certificate. The bonding company could try to obtain one from the construction company for delivery to the seller. Otherwise, under § 151.052, the tax remained a purchaser debt to the seller and could be recovered in the same manner as the sales price.

What this means for you

An assumed construction debt did not create a new exemption. The seller needed the purchaser's completed certificate; the surety's payment role and the underlying project's connection to an exempt entity did not substitute for that documentation.

Common questions

Could the Comptroller refund the tax without a certificate? No.

Was the bonding company allowed to remove the tax from its payment? No.

Why could the bonding company not claim the exempt entity's status? It had no contract with the exempt entity.

What proof did the letter accept? A properly completed exemption certificate from the purchaser.

What if no certificate was obtained? The tax remained a debt of the purchaser to the seller, recoverable like the sales price.

Citations and references

• Tex. Tax Code § 151.052 — tax as a purchaser debt to the seller and collection with the sales price.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8704L0804D01

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller April 8, 1987

Dear ***:

Thank you for your letter of March 24, 1987 concerning your contract with
CONSTRUCTION CO.

Unfortunately, because a properly completed exemption certificate was
never
issued by CONSTRUCTION CO., the sales tax is due and cannot be refunded
by this
office.

The bonding company should pay the sales tax to you since it has assumed
the
debts of CONSTRUCTION CO. The bonding company has no basis for deleting
the sales
tax from its payment to you. It does not have a contract with the exempt
entity and cannot claim exemption on that basis.

The only acceptable proof of exemption is a properly completed exemption
certificate. Perhaps the bonding company will attempt to obtain a
certificate from CONSTRUCTION CO. to give to you so that the sales tax
can be
properly deleted from its payment to you.

Otherwise, the tax is a debt of the purchaser to the seller until paid to
the
seller and may be recovered by the seller in the same manner as the sales
price. A copy of Sec. 151.052 of the sales tax law is enclosed for your
reference.

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,
Julie Pesl
Tax Policy Section
Tax Administration Division