How did the 1991 guidance say contractors and subcontractors should document separated material and service charges for exempt-entity work?

Plain-English summary

The letter reviewed contractor guidance after changes to Tax Code Chapter 151. It said contractors needed sales-tax permits and had to issue resale certificates to suppliers to comply with Rule 3.291.

Subcontractors were eligible for the described exemption when their material costs were separated from service costs. The contractor issued a resale certificate to the subcontractor, and the subcontractor issued a resale certificate to its supplier.

What this means for you

The exemption depended on a separated-charge structure and an unbroken certificate chain from contractor to subcontractor to supplier. This is historical 1991 implementation guidance.

Common questions

Did the contractor need a sales-tax permit? Yes.

What had to be separated? Material costs from service costs.

Who issued certificates to whom? The contractor issued one to the subcontractor, and the subcontractor issued one to its supplier.

Citations and references

• 34 Tex. Admin. Code Rule 3.291 — contractor compliance rule cited in the letter
• Texas Tax Code Chapter 151 — statutory chapter discussed in 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/9108L1130B09

Original ruling text

August 16, 1991

Dear **:

I received the information you FAXED to Mona Shoemate regarding the
recent changes to the Tax Code, Chapter 151. You asked her to review
it and make changes, where necessary.

I've rewritten the "Special Provision" portion of your Important
Notice to Contractors. That information is attached.

The sales tax information on page one of your Administrative Circular
No. 129-62 is still correct. I've rewritten page two as follows:

In order to comply with the requirements of Rule 3.291, as mentioned
in the attached Important Notice to Contractors, it will be necessary
for contractors to obtain a sales tax permit.

It will also be necessary that the contractor issue resale certificates
to suppliers.

Sales tax applications and information regarding resale certificates
may be obtained by writing to:

Comptroller of Public Accounts
Capitol Station
Austin, Texas 78774

You may also receiving information or request sales tax applications
by calling the comptroller's toll free number 1-800-252-5555.

Sub-contractors are eligible for sales tax exemption if made in such
manner that the cost of materials is separated from the cost of services.
The procedure described in numbered paragraph 2 above will effect a
satisfactory separation. When sub-contracts are handled in
this manner, the contractor must issue a resale certificate to the
subcontractor and the subcontractor, in turn, must issue a resale
certificate to the subcontractor's supplier.

If I may provide additional information, please let me know.

Sincerely,

Wanda Hutcheson
Tax Administration Division