Untitled Texas Attorney General Opinion ( 1963 )

Eonorable Robert S. Calvert opinion No. c- Comptroller of'Public Accounts Capitol Station Re: Review of Attorney Austin, Texas General's^Opinion No. WW-1469, dated Dear Sir: December 6, 1962. We have received your letter in which you request that we review the conclusion reached in Attorney General's Opin- ion No. WW-1469: dated December 6, 1962, addressed.to Honor- able Jim N. Thompson, County Attorney, Lamar County. In reviewing this opinion we believe that we should loo::at the history of the request for the opinion mentioned. The County Attorney of Lamar County addressed the request to this office for -an opinion on a question stated by him as follows: "Does paragraph (H) of Article 20.04 of Chapter 20, Title 122A, Vernon's Texas Civil Statutes (the Texas Limited Sales, Excise and Use Tax Act), exempt both the seller and the purchaser or consumer from all of the taxes imposed by that Act where tangible srsonal propertco be used in Fn% State is vurchas6z-a.trk%%``'~ti'ii'e- iixticdTyxF*-seller -.-. to thcqurchaser ,.-_--- pursuant-to a valid written contract exe- cuted prior to September 1, 1961, the con- __.-- ````b``~nrr _.----~..--!a--~ a contract .---__- of sale of tanzj.blc pers?~&,,~roperty in a certj&iiY``$````a~- tity & a cert+&n fixed Erice witn aelive-r-x to be E;er ..i.on certainy%%?iates -..l.~i61-~andnoticeofsuch after Septem- ..``````c~. -. -..-..:.-.-, and the exclusion claimed under paragraph (H) having been duly given by the taxpayer t6 the Comptroller on or before the lapse of one hundred and twenty (120) days from the date of thr passap;eof the Act?" (Eiill)lG1::.I,S aridedby us). 7'1 li.' I.( . 4 i.O~r* t’cqlIr!::L :Ing this o[Arl.i~un c0r~La.i.m.d ii br~i.c:!’ ori Ltic c;uc:::L~i~cjrl Wlili.Cll c2.1 I'lLedattcnt1on to iiulJh?g No. ;ioi t,l~(, Si.:.:i.c: Corilp;.r*o I1 cr, da.Lcd lkcembcr 6 : 1 (,IG:l,. wtli ch . . Honorable Robert S. Calvert, Page 2 Opinion No. C- 30 apparently ruled that the use or consumption oi'the property by the purchaser after delivery is subject to the use tax imposed by J\rticle2O.O3,,Chapter 20, Title 122A, Taxation- General, V.C.S. The request for the opinion does not state any facts other than to ask if the proceeds from the sale are exempt from the taxes imposed by the Act, where the prop- crl; y "is purchased at retail and delivered by the seller to the purchaser pursuant to a valid written contract, executed prior to September 1; 1961, the contract being-a contract OT _sale of tangible personal property in a certain-ffi?-czni- ``-..- zy at a certain fixed price with delivery to be on certain fixed dates aft,erSeptember 1, 1961:'. (See the emphasis in the part of the question as above quoted in the preceding paragraph.) It in apparent that the contract mentioned is only a contract;between the seller and purchaser. for the request :;jx?c:Ll’.ic:llly StnLcr, that the contract J.nvolvcdJ.sa "contract 0;':x3(?'".No mcnLion is made of any contract between eltiler :.hcseller or purchaser and a third party. or anything per- Lainins to se property being, "used for the performance of a VWiLtCIl contract" as provided in the statute. The brief above mentioned.merely attacks Ruling No. 2 of the Comptroller and takes the view that a contract between t'heseller and purchaser as above mentioned provides -_-^-- an exemption from the taxes imposed by the Act. Opinion No. k&i-1489above mentioned: which we are yeviewing, seems to follow the contention shown Jn the brie! by i.he County Attorney as shownby the following statements in the opinion: hi;page 3 of said opinion it is said: "We believe that paragraph (II)cxcmpts both the seller and the purchaser or con- sumcr rrom all the taxes imposed by Cl~:l.p- ter 20 where tangible personal property to bc used in this State is purchased at retail and delivered by the seller to the purchaser pursuant to a valid writ- ten contract executed prior to Septem- ber 1. 1961, with delivery to be on cer,tsinfixed dates after September 1. li)i;l. in a certain fixed quantity at a certain fixed price." The Summary of said opinion at page 5 reads as foiloi~;:;: ..129- . . Honorable Robert S. Calvert, Page 3 Opinion No. C- 30 ':Paragraph(H) of Article 20.04, Taxation General, Vernon's Civil Statutes,,exempts both the seller and purchaser or consumer from all the taxes imposed by Chapter 20, when tangible personal property is sold pursuant to a written contract en- tered into priorto September 1, 1961, provided that the express conditions of paragraph (H) are met." In view of the above statements, said opinion can only be construed as upholding the contention of the County Attor- ney and holds that if a seller and purchaser entered into a contract of sale before September 1, 1961, the proceeds of ?ce sale co~uldbe exempt by giving notice of the contract to the Comptroller as provided by the statute. We have already noticed the ruling of the Comptroller as stated by the County Attorney that the transaction would be subject to the - use tax imposed by Article 20.03, if used or consumed by the purchaser. In view of the above holdings, we are constrained to hold that Opinion No. w-1489 is in error and that the same should be overruled for the reasons hereinafter stated. As stated in the opinion mentioned, the sales tax is new and we are not aware of any reported cases construing the section of the act which is involved. The statute involved is contained in the Acts of the Pirst Called Session of the 57th Legislature (1961), Chapter 24, Section 1, Article I, and Article 20.04, Chapter 20, Title 122A, Taxation-General, V.C.S., reading as ~follows: 'I'" Written Contracts and Bids Bxe- cuted Prior to the Effective Bate of this mitted prior to the effective date of this Chapter which bid or bids could not be or withdrawn on or after.that .?,lkered -130- Honorable Robert S. Calvert, Page 4 Opinion No. C- 30 date and which bid or bids and contract entered into pursuant thereto are at a fixed price not subject to change or modification by reason of a tax imposed by this Chapter. "Provided; however, that notice of such contract or bid by reason of which an exclusion is claimed under this para- graph (H) must be given by the taxpayer to the Comptroller on or before the lapse of one hundred and twenty (120) days from the date of passa e of this Chapter." (Emphasis added.B It is to be noticed that the statute does not refer to a contract between the seller and purchaser as decided in Opinion No. \itl-1489. It $e also noticed that the~statute does not refer to a sale pursuant to a written contract" - as stated in the Summary of the opinion. In the first place, why should the proceeds from a sale by a contract between the seller Andypurchaser be exempt from the taxes imposed by the~Act any more than a sale and purchase between a store and any'customer at any time without a previous contract? If we are going to say that the nroceeds from a sale by virtue of a contract between the seller and purchaser are exempt from the tax, then it would have been an easy matter for any person to enter Into a contract with some merchant to s,ellhim certain products for any number of years at a predetermined price and thus evade the tax. We do not believe the Legislature intended such a result. The statute says that the "receip- from the sale" are exempt when the -- sold property Is u-for the performance of a written contract entered Into before the effective date of the act". It appears, therefore, that it was the intention thet the contract must be one between the purchaser and a third party and not between the seller and the purchaser. Assuming, without passing upon same,~it may be possible that the statute could cover a contract between the seller and pur- chaser, as for example, A, a lumber dealer, contracts with 3. a contractor, for B to build a house for A with an agreement that llwill purchase from A all lumber used in constructing the house. Rqwever, In such case, B would be using the lumber to "perform the contract" to build the house fzr-A-hnd would noL be usix _-_ the lumber to perform the contract of sale of the lumber. . . Honorable Robert S. Calvert, Page 5 Opinion No. C- 30 We believe that the purpose of the provision mentioned was to make provision for such persons as contractors who have entered into construction contracts based upon,the fact that the contractor could.purchase certain materials at certain prices without a tax on the sale of the materials and he agrees to perform the contract for a certain amount. If a ccntractor should be'required to pay a tax on the material, then he would suffer a loss in performing his contract. The Legislature did not want to make a person who had made a bona fide contract before the effective date of the act to suffer a loss on ac- count of the act. . The view just mentioned is further strengthened by the alternative provision in the second (Ii) provision of the section which provides for an exemption from the receipts of the sale where the property Is used, which provision reads as follov~s: 11 or (Ii) pursuant to the obli- gation'oi.a bid or bids submitted prior to the effective date of this Chapter which bid or bids could not be altered or withdrawn on or after that date and which bid or bids and contract entered into pursuant thereto are at a fixed price not subject to ~changeor modlfl- cation by reason of a tax imposed by this Chapter." In ot,herwords, we see that the exemption provided for by reason of a prior contract is for the protection of con- -Lrhctors(1) who have already contracted or (2) who have made a bid and cannot be relieved from the bid. It .is, well known ': I,- t;~:``in many instances contractors are requirea to accompany bids with certified checks calling for a penalty to be paid If I they fall to enter into a contract If it in awarded to them. You are advised that we have reviewed tipinlonNo. 1 4,!-14.89 and are of ~the opinion that It should be overruled. 1 SUMMARY The provisions of Paragraph (H) of Arti- cle 20.04, Chapter 20, Title 122A, Taxation- General, V.C.S., exempting the receipts from the sale, use or rental of, and the storage use or other consumption of tangible personal property when used for the performance of a contract entered Into prior to the effective date of . . ., . Honorable Robert S. Calvert, Page 6 Opinion No. C- 30 the Act, do not apply to a mere contract of sale of tangible personal property, but only to a contract made by the purchaser to be used for the performance of a contract. Opinion No. W-1489 IS overruled. Yours very truly, WAGGONER CARR Attorney General of Texas By: Assistant HGC/jp APPROVED: ,OPINION COMMITTEE W. V. Geppert, Chairman John Reeves Ernest Fortenberry Jerry Brock APPROVED FOR THE ATTORNEY GENERAL By: Stanton Stone