If a contractor donates building materials to a tax-exempt airport authority before incorporating them into the building, are the materials and consumable supplies used in the job exempt from Texas sales tax?

Subject

Airport Authority Construction — Donated Materials Exempt, Consumables Taxable Unless Separately Stated

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9309L1257D09

Plain-English Summary

The taxpayer wrote to the Comptroller about a construction project at an airport facility. The letter responds to an earlier phone conversation confirming that the agreements in place were satisfactory as to the materials to be incorporated into the building: materials donated before incorporation into the building would be exempted from tax.

However, the letter draws a clear line between building materials and consumable supplies. The agreements, as they stood, did not cover consumables — the exemption for donated materials would not extend to consumable supplies unless the contracts with the subcontractors were amended to separate out the consumable supplies as their own distinct item, apart from the building materials to be incorporated.

The bottom line stated in the letter: as the agreements existed at that time, building materials purchased under an exemption certificate and donated to the airport before incorporation into the building would not trigger tax. But consumable supplies would remain taxable unless the subcontractor agreements were specifically amended to break out the cost of those consumables separately.

What This Means For You

If you're a subcontractor donating materials to an exempt entity like an airport authority: Materials that you purchase tax-free (under an exemption certificate) and donate to the exempt entity before those materials are incorporated into the building can be exempt from tax under this letter's facts. Timing matters — the donation needs to occur before incorporation into the realty.

If your contract also involves consumable supplies: Don't assume the same donated-materials exemption automatically extends to consumables. This letter says consumables remain taxable unless your subcontractor agreements are amended to carve out and separately state the cost of consumable supplies as a distinct line item from the building materials.

Practical drafting takeaway: If you want consumables to potentially get the same treatment as donated building materials, the letter indicates you need to restructure the subcontractor agreements so the consumable supplies are itemized separately rather than bundled in with the materials to be incorporated.

Q&A

Q: Are building materials donated to the airport before being incorporated into the building taxable?
A: No. The letter states that building materials to be incorporated into the building may be purchased under an exemption certificate and donated before incorporation, and "tax will not be owed."

Q: Are consumable supplies used on the same job automatically exempt too?
A: No. The letter says the agreements, as they existed, would not cover the consumables — they "remain taxable" unless the subcontractor contracts are amended to separate out the cost of consumable supplies as a separate item.

Q: What has to change for the consumables to get different treatment?
A: Per the letter, the contracts with the subcontractors would need to be amended to separate not only the building materials to be incorporated but also the consumable supplies as a separate item.

Q: Does the letter cite a specific Tax Code section or Rule for this treatment?
A: No. The letter does not cite any specific statute or rule number — it simply confirms the tax treatment based on the agreements described by the taxpayer.

Original ruling text

September 14, 1993

Dear **:

On September 10, 1993, you wrote concerning a construction project at
the * for * After receiving your letter, I called to let
you know that the agreements were satisfactory as concerned the materials
to be incorporated into the building and such materials donated before
incorporation would be exempted. However, the agreements would not
cover the consumables unless the contracts with the subcontractors
were amended to separate not only the building materials to be
incorporated but also the consumable supplies as a separate item.

Therefore, as the agreements now exist, building materials to be
incorporated into the building may be purchased under an exemption
certificate and donated to ** before incorporation and tax will not
be owed. However, unless the contracts with the subcontractors are
amended to separate out the cost of consumable supplies, these will
remain taxable.

I hope this satisfactorily answers your inquiry.

Sincerely,

Wade Anderson
Assistant Director of Tax Administration

NOTE: Previous Accession Number 9309158L