Did an FDIC or RTC property manager inherit the federal entity's Texas sales-tax exemption, and did a financial institution's tax debt disappear after takeover?

Plain-English summary

The author declined to give a fact-specific taxability opinion because the requester had not supplied transaction facts. The letter instead restated two Texas policies concerning FDIC and Resolution Trust Corporation matters.

First, Tex. Tax Code § 151.309 exempted taxable items sold, leased, rented, stored, used, or consumed by the United States and specified federal instrumentalities. That exemption generally did not extend to private contractors or service providers merely because they performed a federal contract. A property manager for FDIC or RTC did not become a federal instrumentality or automatically inherit the customer's exemption. The letter said a written agency agreement making the manager a purchasing agent for the federal entity could change the result.

Second, a Texas sales or use tax debt owed by a financial institution was not extinguished merely because the institution later entered FDIC or RTC conservatorship or receivership. The takeover did not change the underlying taxable transaction. To the extent the conservator or receiver had to satisfy the institution's debts, the letter stated that FDIC or RTC was liable for the tax.

The attached January 28 letter also described documentation requirements for a management company claiming to make tax-free purchases on behalf of FDIC or RTC. The preserved source text is incomplete in the middle of its second requirement, so this summary does not attempt to reconstruct that missing language.

What this means for you

Federal ownership or receivership did not automatically shelter a private property manager's purchases. The legal relationship and written agency documentation mattered. Separately, a later takeover did not erase tax already imposed on a financial institution's earlier transaction.

Common questions

Did the letter decide the parties' specific dispute? No. It said too few facts had been provided.

Was a private FDIC or RTC property manager automatically exempt? No.

Could an agency relationship change the result? Yes. The letter said a written purchasing-agency agreement could do so.

Did conservatorship or receivership erase an existing Texas tax debt? No.

What about personal-property or ad valorem tax questions? The letter directed those questions to the local appraisal district or the Comptroller's Property Tax Division.

Citations and references

• Tex. Tax Code § 151.309
• U.S. v. New Mexico, 455 U.S. 720 (1982)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9204L1168C09

Original ruling text

April 15, 1992

Re: **

Dear **:

Thank you for your recent letter. I do not know the extent, if any,
to which this office is involved in a dispute among FDIC, COMPANY A,
COMPANY B, and COMPANY C. My January 28, 1992, opinion letter
addressed to COMPANY B (which you attached to your letter) was issued
in response to a request from COMPANY C. The opinion letter is
simply a restatement of our policy regarding property managers who
claim tax-exempt status on behalf of RTC or FDIC. The letter draws
no conclusions about the facts of your specific dispute. Likewise in
this instance, you have provided no facts that could form the basis
for a taxability opinion.

At one point in your letter, you refer to "personal property" taxes,
which usually means ad valorem taxes on personal property. If you
have questions about ad valorem taxes, I recommend you deal directly
with the local appraisal district that administers the tax. Feel
free also to direct ad valorem tax questions to the Comptroller of
Public Accounts, Property Tax Division, Capitol Station, Austin, TX,
78774-0100.

With regard to COMPANY B, et al, it was my understanding (based on
a brief telephone call) that the tax at issue is limited sales and
use tax. Again, I can render no specific opinion without specific
facts. However, I can confirm that the Texas limited sales and use
tax law conforms to federal law and the United States Constitution
by providing as follows:

A taxable item sold, leased, or rented to, or stored, used, or consumed
by, any of the following governmental entities is exempted from the
taxes imposed by this chapter:

(1) the United States;

(2) an unincorporated instrumentality of the United States;

(3) a corporation that is an agency or instrumentality of the United
States and is wholly owned by the United States or by another
corporation wholly owned by the United States;

. . .

Texas Tax Code Section 151.309.

Generally speaking, this provision does not create an
exemption for private contractors or service providers doing
business with the federal government. Absent another
applicable exemption in the Texas Tax Code (a sale for
resale, for example), a private contractor or service
provider must pay tax on goods and services purchased,
leased, or rented to perform a federal contract.

Such imposition of a state tax on a private contractor was
upheld by the United States Supreme Court in U.S. v. New
Mexico, 455 U.S. 720 (1982). The State of New Mexico had
imposed gross receipts and compensating use taxes on private
contractors who managed government-owned atomic laboratories
in the state. The Court upheld the assessment, declaring
that, as independent taxable entities, the private
contractors were not protected by the Constitution's
guarantee of federal supremacy.

In the same way, a person who manages property for the FDIC
or RTC is not exempt from payment of Texas sales or use tax
solely because the taxable purchase is made pursuant to a
management contract with the federal government. The
management company does not become a federal agency or
instrumentality and does not otherwise inherit the FDIC's or
RTC's exempt status. As discussed in my earlier letter,
however, a written agency agreement between the manager and
the federal government can change this result.

On a related issue, it is also this office's position that a
tax debt owed to the State of Texas by a financial
institution is not extinguished solely because the
institution subsequently enters into FDIC or RTC
conservatorship or receivership. Taxability is determined
by the substance of the transaction on which the tax is
imposed. The substance of the underlying transaction is not
altered or affected by the subsequent event of FDIC or RTC
takeover, and the tax remains a debt of the institution to
the State. To the extent that FDIC or RTC, acting as
conservator or receiver, must satisfy debts of the
institution, FDIC or RTC is liable to the State for the tax.
It is our position that such tax was lawfully imposed on a
transaction between a financial institution and a vendor,
and is not an unconstitutional direct tax on the federal
government.

I hope this information is helpful to you. Please feel free
to submit a detailed description of the facts of the
transactions in question. I would then be able to issue a
specific statement of our position regarding whether sales
or use tax is due on those transactions, and why. If you
have further questions, feel free to write or call me at
1-800-252-5555, ext. 3-3889.

Sincerely,

John Christian
Attorney
Tax Administration Division

January 28, 1992

Dear **:

In response to a request from Mickey Moore of COMPANY C,
I am sending you the enclosed copy of a letter opinion we
issued regarding tax-free purchases made on behalf of the
Resolution Trust Corporation or the Federal Deposit
Insurance Corporation in connection with management of property
that belongs to a failed financial institution.

Our present policy is that, in order to make tax-free
purchases on behalf of RTC or FDIC, a management company
must have both: (1) A written agreement between the
management company and RTC or FDIC that makes the management
company a purchasing agent for RTC or FDIC; and (2)
by RTC or FDIC. A copy of the deed held by the insolvent
thrift, along with written proof that the RTC placed the
S & L into receivership, is sufficient to satisfy
requirement (2), above.

A management company that does not have the proper agency
authorization and documentation as set out above is not
entitled to claim exemption from tax solely because its
customer is RTC or FDIC. Texas law does not permit these
entities' tax-exempt status to automatically extend to all
independent, private companies that do business with them.

If you have any questions, feel free to write or call me at
1-800-252-5555, ext. 3-3889.

Sincerely,

John Christian
Attorney
Tax Administration