When a company sells blueprints made from customer-supplied drawings, does it owe sales tax on the sale, even if the blueprints end up being used to build a real estate improvement for a tax-exempt entity?

Plain-English summary

This letter from the Texas Comptroller's Tax Policy Division (signed by Joan Hale, replacing an earlier August 3, 1995 letter) answers questions from "Company X," a Texas corporation that produces blueprints from drawings and tracings supplied by architects, engineers, construction contractors, and other customers. Those customers either use the blueprints themselves or pass them on to their own customers for constructing real estate improvements for tax-exempt entities. Company X asked whether it should collect sales tax on its blueprint sales across five different scenarios.

The Comptroller's answers came down to one consistent principle: the tax-exempt status of the ultimate building owner does not flow through to whoever buys the blueprints from Company X, unless that buyer is the tax-exempt entity itself.

• Scenario 1 — Company X sells to an architectural/engineering ("A/E") firm, which provides the blueprints to a general contractor for a tax-exempt entity's project, under a separate professional-services contract that pays A/E for services plus reimbursable costs (including blueprint costs), and A/E gives Company X an exemption certificate. Response: taxable. An architect's professional service isn't itself taxable, but as the provider of that nontaxable service, A/E must pay sales tax on the materials and supplies (including blueprints) it uses to provide the service — it cannot claim an exemption just because its client is tax-exempt. Company X must charge A/E sales tax.
• Scenario 2 — Same as Scenario 1, but A/E's contract is lump-sum (reimbursable costs not separately stated). Response: same answer — taxable. Whether the contract is lump-sum or itemized makes no difference; tax is due on Company X's charge to A/E.
• Scenario 3 — Same as Scenario 1, but A/E's contract is referenced in the construction contract. Response: still taxable. Company X must charge A/E sales tax regardless.
• Scenario 4 — Company X sells blueprints directly to the general contractor, who provides an exemption certificate covering purchases related to the construction contract with the tax-exempt entity. Response: taxable. Because the general contractor is not itself the exempt entity, it should not be issuing an exemption certificate, and sales tax is due on Company X's sale.
• Scenario 5 — Company X sells blueprints directly to the tax-exempt entity itself, which provides an exemption certificate. Response: exempt. In this case only, Company X may accept the exemption certificate in lieu of collecting sales tax.

The letter notes it is based on the facts presented and could change with different facts, and references a prior accession number (9508437L) that it appears to supersede or replace.

What this means for you

Blueprint, drawing, and printing/copy businesses

If you sell blueprints or design copies to architects, engineers, or general contractors — even when you know the ultimate project is for a tax-exempt entity — you generally must charge sales tax on that sale. Do not accept an exemption certificate from an A/E firm or a general contractor just because their end client is tax-exempt; only accept one if you are selling directly to the tax-exempt entity itself.

Architects and engineering firms

Under this letter, your professional services are not taxable, but you owe sales tax as the end user of materials and supplies (including blueprints) purchased to perform those services — regardless of whether your contract with a tax-exempt client is lump-sum or itemized, and regardless of whether your contract is referenced in the construction contract. You cannot pass your client's exempt status through to your own purchases.

General contractors

You are not entitled to issue an exemption certificate for blueprints or similar purchases related to a construction contract with a tax-exempt entity, because you are not the exempt entity. Expect to pay sales tax on such purchases.

Tax-exempt entities and their vendors

If a tax-exempt entity buys blueprints directly from the producer, it can furnish its own exemption certificate and the sale can be made tax-free. The exemption only works this way — through a direct sale to the exempt entity — not through intermediaries like A/E firms or general contractors.

Common questions

Q: Does it matter whether the A/E firm's contract with the tax-exempt entity is lump-sum or separately itemized?
A: No. The letter states it makes no difference — tax is due on Company X's charge to the A/E firm either way.

Q: What if the A/E firm's professional services contract is referenced in the construction contract for the tax-exempt project?
A: It still doesn't change the outcome. Company X must still charge the A/E firm sales tax on the blueprints.

Q: Can a general contractor use an exemption certificate to buy blueprints tax-free for a tax-exempt entity's project?
A: No. Because the general contractor is not the tax-exempt entity, it should not issue an exemption certificate, and the blueprint seller must charge tax.

Q: When can the blueprint seller actually accept an exemption certificate?
A: Only when it sells the blueprints directly to the tax-exempt entity itself (Scenario 5).

Q: Is an architect's professional service subject to sales tax?
A: No — the letter states the professional service of an architect is not taxable. But the architect, as a nontaxable service provider, still owes sales tax on the materials and supplies (like blueprints) it purchases to perform that service.

Citations and references

No statutes, rules, or case law are cited in the original 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/9508L1367F07

Original ruling text

August 14, 1995

Dear ***:

Thank you for your recent phone call regarding my letter to your
company dated August 3, 1995. This letter is to replace that earlier
letter.

Facts: Company X is a Texas corporation in the business of producing
blueprints from drawings and tracings provided by architects,
engineers, construction contractors and other customers. These
customers either use the blueprints directly or provide them to
their customers for use in the construction of real estate
improvements for tax exempt entities. The blueprints are used only
for the specific building being constructed and are not used again
for other construction jobs. You ask if Company X should collect
sales tax on its sales of the blueprints in the following scenarios.

Scenario 1: Company X sells blueprints to an architectural/
engineering firm ("A/E" firm). A/E provides the blueprints to a
general contractor for use in constructing a real estate improvement
for a tax exempt entity. A/E is providing professional services to
the tax exempt entity pursuant to a contract separate from the
construction contract. A/E's contract provides for compensation for
services rendered, plus reimbursable costs (including the blueprint
costs). A/E's contract is not referenced in the construction
contract. A/E provides Company X with a sales tax exemption
certificate for all purchases from Company X with a sales tax
exemption certificate for all purchases from Company X related to
A/E's contract with the tax exempt entity.

Response: The professional service of an architect (e.g., A/E) is
not taxable. As the provider of a non-taxable service, A/E pays
sales tax on all materials and supplies used to provide the non
taxable service. A sales tax exemption cannot be claimed on these
purchases even though A/E's client may have exempt status from Texas
sales tax. Therefore, Company X would charge sales tax to A/E.

Scenario 2: The facts are the same as in Scenario 1 except the
A/E's contract provides for a lump-sum billing (reimbursable costs
are not separately stated).

Response: The answer is the same as the response to Scenario 1
above. It makes no difference if A/E's contract is lump-sum or
separated, tax is due on Company X's charge to A/E.

Scenario 3: The facts are the same as in Scenario 1 except that
A/E's contract is referenced in the construction contract.

Response: The answer is still the same. Company X charges sales
tax to A/E.

Scenario 4: Company X sells the blueprints directly to the general
construction contractor. The general construction contractor
provides Company X with a sales tax exemption certificate for all
purchases with respect to the construction contract with the tax
exempt entity.

Response: Sales tax is due on blueprints sold to the general
construction contractor by Company X. Since the general construction
contractor is not the exempt entity, it should not issue an
exemption certificate.

Scenario 5: Company X sells the blueprints directly to the tax
exempt entity. The tax exempt entity provides Company X with a
sales tax exemption certificate.

Response: When Company X sells the blueprints directly to the tax
exempt entity, Company X may accept an exemption certificate in
lieu of sales tax.

This opinion is based on the facts presented. If there are
additional or different facts, the opinion could change.

If you have any questions, please feel free to call one of our
tax specialists toll free at 1-800 252-5555. You may also write
to Tax Policy Division, Comptroller of Public Accounts.

Sincerely,

Joan Hale
Tax Administration Division

NOTE: Previous Accession Number 9508437L