Was Texas use tax due on out-of-state stone processing and freight when the processed stone entered Texas for construction?

Plain-English summary

The requester bought unprocessed stone from Utah, had it processed in New Mexico, and brought it into Texas for use in new construction.

The Comptroller said the raw stone purchase was exempt. The processing charge was taxable under Tax Code § 151.005 and became subject to Texas use tax when the processed stone entered Texas for use by a lump-sum contractor. Freight billed by the New Mexico processor also entered the taxable amount.

If the Texas customer contract was separated rather than lump-sum, the total amount charged to the customer for materials was taxable.

What this means for you

Exemption of the raw input did not exempt later fabrication or delivery. Contract form changed whether the contractor bore use tax or collected tax on the material charge.

Common questions

Was the unprocessed stone taxable? No.

Was the out-of-state processing charge taxable? Yes, when the stone entered Texas for the described job.

Was processor-billed freight included? Yes.

What if the construction contract was separated? The customer paid tax on the total materials charge.

Citations and references

• Tex. Tax Code § 151.005 — processing charge provision cited by the letter

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9104L1109C13

Original ruling text

April 30, 1991

Dear **:

Thank you for your recent letter concerning the taxability of
unprocessed stone, that is processed outside of Texas, and then
shipped into Texas to be used in new construction.

The sale of unprocessed stone has been exempt from sales tax since
June 13, 1988. The purchase of the unprocessed stone from the
Utah company would not be taxable.

The amount charged to process the stone is taxable under section
151.005 of the sales tax law. The amount charged for processing
the stone by the New Mexico company would be subject to Texas use
tax when the stone is delivered into Texas to be used in a new
construction job by a lump-sum contractor. If the New Mexico
company is billing you for the freight charges to deliver the
processed stone, this would be part of the taxable amount also.

It is not stated in your letter if your contract with your
customer is a lump-sum contract or a separated contract. If this
was a separated contract, then the total amount you charged your
customer for the materials would be taxable to them.

This opinion is based on the facts presented. If there are addi-
tional or different facts, the opinion may change.

You may call me toll free at 1-800-252-5555, etc. 33690. The reg-
ular number is 512/463-3690. You may also write to Tax Adminis-
tration at the above address.

Sincerely,

David Somerville
Tax Administration Division