Untitled Texas Attorney General Opinion ( 1962 )

Honorable Jack Fields Opinion No. WW-1258 county Attorney ``,“tacNnCounts Re: Whether the state E per cent iivaca, *eras sales tax awlles. to mja$erlal and suppliee purohaaeu by con- traotofs to be irmmpwated in public bulldIngs under a Dear Mr. Melds: “Lump SUP” contract. You have asked this office for an opinion as to whether or -not the state ltiited sales, excise and use tax applies to material8 and supplies purchased by contractors from material auppliersI such materials and supplies, to be Incorporated into a public butldlng, tb-wit a county hospital. You state that Calhoun County has voted $700,000 In tax bonds for an eqlmrion OS the hospital. In response to a telephone inquiry, you at&t&d that all of the bids were in “lump,sum”, that is, one prtee wan submftted for all labor and materials. This act, commonly known as the Texas Sales Tax Act, wan enacted by the 57th Lsgfslature, FiPst ,$alled Sew3lon, and ,“beDame effective on September’l; 1961. The act is Article I of House Bill No. 20, to be codified In Chapter 20, Title 122& Taxatlon-Qeneral, V.C,S., as Articles 20.01 to 20.17,lnoluelve. Article 20-02 of the Act reada in part aa followa: “There is hereby Imposed upon each separate aale at retail of tangible personal property shade within this State a limited sales tax at the Pate of two per c&t (2$ of the eale price of each Item OP a+tiole 0h tMgible peraonal property when sold at retail In this State, “(A) Method oi Colleotion and Rate of Limited Sales Tax. The tax hereby lmpoeed shall be collected by the retailer from the comumr . ” Article 26.03.0f the Aot reads In part as follows: . *An excise tax is hereby imposed on the atorage, use or other consumption in this state of tangible personal property purchased, ., . ” ‘Honorable Jack Bielde, Page 2 ‘. . leased OP rented fmn any retailer on or after September 1, 3961, for storage, ma or other conevnptlon in thla State at the rate of two per cent (2$) of the .eales prlee of the propsrty.or, In the case of leases or rentals, of said lease or rental prioee. me````f U.;;d.::;; for Ihe Tax: Extfnguiah- Every person storm& using OP otherwls;?,consuming in this State tangible personal pmpmty purchased from a retailer or leased or rented Prom ahother 'person for such~purpose~is liable for the tax. Hi8 liability is ,pot extinguished until the tax hae. been paid to this State, except that a receipt from a retailer mafntaining a place of bu;sfnese in this State 01”from a mtaller who is authorfmi by the Comptmller, under such rule8 end regulation8 a6 he may ‘. b~rfb``~to collect the tax and who Sb, . QP tlm purposes of thfs Chapter relating 4” to Wmuae t;ax, regard& ‘aa a retailer mafn- of bW.nem in this State, purbuant to paragraph * Artfole fa sufficient to relieve ipemafu@hm liabb412ty for the tees $4 which the meerpt mfers.” . . %~PQ are exempted f%qm the computation of.the 8ztmmt 08 th@ &srs;s Quposed by this ‘oN#-a`` the reoefpta Ppog the aalec lease . .‘op m&al 00 say tangibke parson81 property tog OP a?#m ewmge* um OT othel, 00lasww1Qs e& ter@lbl~ @WsaU ppelprptv bvs ‘(4) Any %ountyp sfty, special dZetrict QP.O``~Ppolltloa1 aub&vidion of this State. ’ &rt$ole 20.04 (8 ) (4) of the aet state8 that countlee, klttis, apeelal diatrieta-and other political subdlvlslons of .’:.tMa Tote erpd %Xe@pted &ax! the oomputatlon of the amount of ‘. . t&a tqes .3apoml by th%a Chapter em Xt ia pleln that under, the . ‘. Honorable Jack Fields, Page 3 Opinion No. WW-1258 language of the above ofted provleion, a purchase by the oounty Itself of materials and supplies to be afterward Incorporated into a county public building is exempt from the tax. But what if” the coMPactor buys the material land supplies to be Incorporated Into a building for an exempt agency under a “lump sum” contract? What did the Legislature mean by Article 20.01 (T) of the act, which read8 86 fol~ow#r “(T) Contractor or Repalpman. ‘Con- tractop’ OP ‘RepaIrman’ shall mean any pez.son who pepSorms any repair. service upon tangible personal property or who perform any improvement upon real estate, and who, as a rieceseary and incidental part of performing such L)ervIces, Incorporates tangible personal property belonging to him into the property being 80 repaired or ,,Improved a Contractor or repairman shall be ‘oonsidered to be the consumer of such tangible personal property Surnished by him and In- eorpomted into the propsAy of his CuatomeC~ POP all OS the purposes of this Chapter. “(1) The above provislon ahall apply only IS the oontraot between the person PerSorming the aervlcea and the person receivfng them contains a lump sum price covering both the perfomance OS the servicesand the Surnish- lng of the necessary iX4dental material.” The first sentence in thedefInitIon quoted in Article 20.01 (T) shows that the Legislature intends to make no dla- tlnction between 8 “cofitractor” and a “repairman. “ The term applies to anyone who: (a) “ierforms any rspair services upon tangible peereon% property” OP (b) “g;;z;ps any improvement upon real ana, “as a necessary end Incidental part of performing such servloes, incorporates tangible personal property belonging to him into the property being so repaired or improved. Does a construction contractor who undertakes to con- atruct a building for his customer under a ‘lump 8um” contract fall #ithin this deffnltlon? We hold that he does, because ., . . ; : . 1._ : ``8omrable Jack Fields, Page 4 Opinion No. WV-1258 he *pePiorme en improvement upon rdal eatate,” to-uit;. hb.. construeto a building on the land; and “aa a neoerrmrg and inoldental part of pelpiomlng suoh aePvIceI), inoo~porates tsngible personal pPoperty belonging to him int+,tha property beIn@ 110 repaired or Lawroved,” to-wit, limpbar, brick or etone, plumbing material@, wiring, plaster, tile, eta. It ha6 been ruggerrted that paragraph (Ti of Article 2O.01 of the aot, In lta def’inftlon of “Contraotor or “SiqalPman” 18 not Pererring to a “eon&Puotlon” oontraetor, who oonstructr .bulldiny, roads. brldger 8nd other rtruoturer ~B.xed to the land, but should be llmlted to repaIrmen onlyi rdL0 npa9.r tangible pepsopal property or who Q&B repaIra to exl#tlng structures tiiixed t0 the land. The artatuto, howover, makom . no such dlntlnctlon. Included In the deflnltion ir one “who slderlng how to claaelcLy an elaborate air conditioning syetem which had been installed In Q building extending irom the basement and throughout five floors of the building, and stated at page 472: “In fact, OUTTexas oaeee, along with rome otheror take the view that the term ~lmprovemente~ comprehends all addltlons ~to the freehold, except ‘trade fixtures’ which can be Pemsved without Injury to the building e‘I We cannot give the tePm any narrower meaning. Note that undeP the above derinltfon, tb aontraator 10 incorporating tangible personal property “belonging to him,” that la, to, the 0ontPactoP. The definition qoe8 on to say that the oontPa0tor OP PepafPman Is the “ooneumer of’ the tangible peraonal property furnished by him. Under Article 20.03 ot the act there Is Imposed a u8e tax, and in Section (A) thereot 16 round the r0il0wilag etatement: 1 “Every person atoping, using or otherwise consumlrq in this State tangible personal property puP0hased fPom a retailer or leased op. rented tPom another person for auoh pur- pose is liable fop the tax. ” .* .. . , .. Honorable Jack Fields, Page 5 Opinion No. WY-1258 Section (A) of Article 20.03 further provide6 that the conBUrner’s liability to pay the tax 1s extinguished if he haa a receipt from a retailer with a place of bueineaa located In Texas, or a retafler who has been Issued a permit by the Comptroller. Section (1) of paragraph (T), Article 20.01, states that the preliminary statement in paragraph (T) applies when “the peraon performing the services:’ that la, the contraator or repairman, charges the “person receiving them,” that Is, the customer, a “lump sum prioe covering both the performance of the aervlcea and the furnlehing of the necessary incidental material .n Section (1) further provides that the rule laid down above applies only to “lump sum” contracts. The problem presented where tha contract providea for separate bill for labor and materials Is covered in Seotlone (2) and (3 7 or Article 20.01, but is not before UB at this time. Applylru5 the’foregofng to the bid, or contract resulting therefrom, for the expansion of the county hoapltal, we hold that,slnce the contract between the construotlon company and the county provides for lump sum payment, then under the plain language of Article 20.01, paragraph (T), including the pre- ,, llmlnary definition, and Section (1) following thereafter, construed with Article 20.03, paragraph (A), the title to the materlala and supplies passes from the material supplier to the contractor at the time the contractor purchases them. The contractor, therefore, urea “tangible personal property belonging ‘to him” In performing “an improvement upon real estate” and iti the “consumer” of such materlale. Since he is the ultimate coneumer of such materials, the contractor pays the tax to‘hla supplier. Article 20.01 (T) of the act states that thie is the last sale of the material6 as Buch, when such materiale are to be used In fu;lfilling a lump sum contract. Therefore, under a lump .%a contract, there is no tax which the contractor can collect from hle customer, on the materials furnished; and this would be true with regard to any “lump sum” contract, regardless of who the oustomer might be. SUMMARY A construction contractor, under . a contract to construct an expansion to a county hospital, where the contract price Is in “lump sum” for all labor and material?, la the ultimate ooneumer of all mater’lals used in constructing such project, as provided in paragraph (T), and Seoflon 1 thereof, of Article 20.01,' Title 122A, Taxation-Qeneral, V.C.S. Such contractor muet pay the sale6 tax I’, . RonorableJack Fields, Page 6 OplnlonNo. WW-1258 on materiala and eupplles pumhased from his materialsupplier,and tw oontractor cannot oollect the tax Prom his mratomer. The oountyta exempt status .. under Section (4), paragraph (F), of Artlcle.20.04 of the above aot will not Inure to the benefitof:the oontractor under a "lump mm" oontract, Youra very truly, ;~yy-q.Y* . Riley &gene Bletcher 'Asslbtant APPROVED8 OPINIONCOMMITTEE: W. V. asppert,Chairman MhriettaMoQregor Payns Martin ruter~0 Rlmer McVeg Arthur Sandlln RRVIRWJ FOR 'PHI3A’i’TGR.WRY QNNERAL By: Houghton Brownlee, Jr,