Could a contractor or subcontractor claim the 1987 prior-contract exemption without having its own written contract or bid with suppliers?

Plain-English summary

The Comptroller explained that the prior-contract exemption covered items purchased under either a written contract signed by both parties before January 1, 1987, or a seller's written bid issued before that date. The seller and purchaser also had to be bound to a fixed price or to a price based on criteria neither party controlled.

For this contractor or subcontractor, qualifying purchases could rely on the contract or bid between the general contractor and the owner. The contractor or subcontractor did not also need a written bid or contract with each supplier.

The Comptroller found that the submitted example prior-contract exemption certificate was completed properly and could be given to suppliers for qualifying items.

What this means for you

The historical exemption followed the qualifying project-level agreement rather than requiring a separate pre-cutoff contract at every link in the supply chain. The purchased items still had to be used to fulfill the qualifying contract.

Common questions

What timing qualified? A written contract signed by both parties before January 1, 1987, or a seller's written bid issued before that date.

Did the price have to be fixed? Yes, unless it was based on criteria outside the parties' control.

Did the contractor need written agreements with suppliers? No.

Could the submitted certificate be used? Yes, for qualifying items.

Citations and references

• No statute or rule number is cited in the ruling text.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8707L0823E12

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller July 7, 1987

Dear ***:

Thank you for your recent letter regarding prior contract exemptions.

In order to qualify for a prior contract exemption, the items to be
purchased must be covered by either a written contract signed by both
parties prior to January 1, 1987 or a written bid issued by the seller
(general contractor in this case) before that date. In addition, both
the seller and the purchaser must be bound by a fixed price, or the
price must be based on criteria not controlled by parties to the
contract.

In your case, the items to be purchased to fulfill your contract with
the general contractor qualify for the prior contract exemption if the
contract/bid between the general contractor and owner meets the
requirements outlined above. It is not necessary for the contractor/
sub-contractor to have a written bid or contract with its supplier(s)
for the exemption to apply.

The example "Prior Contract Exemption Certificate" you submitted with
your letter is completed properly and should be submitted to your
supplier(s) for qualifying items.

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,
Sandi Skaggs
Tax Policy Section
Tax Administration Division