DR8802-CS 910916 September 16, 1991
Mr. Alan Ratliff
City Manager
City of Coppell
P.O. Box 478
Coppell, Texas 75019
Re: CITY CONTRACTS - Sales Tax on Tangible Personal Property
Needed For Capital Improvements
Dear Alan:
Enclosed is a copy of TML Bulletin dated August 23, 1991,
regarding the effect of Tax Bill 1H.B.11, recently adopted by the
Legislature at the last special session.
The Bulletin indicates that the State Comptroller's office has
issued a letter stating that the use of "separated contracts" will
allow for tax-free purchase of tangible personal property which is
incorporated into and becomes a part of a public project. A
separate contract is one which separates charges for materials from
charges for labor. The separate charges for each must be included
in the executed contract.
The memorandum from TML contains the following, to-wit:
"Under a separated contract, the contractor becomes a seller
of materials incorporated into the project. (Example: bricks,
lumber, concrete, paint, etc.) As a seller, the contractor
may issue a resale certificate in lieu of paying a sales tax
at the time of purchase. The contractor must then receive an
exemption certificate from the exempt organization (city) for
the materials. This procedure may not be used for materials
which do not become a part of the finished project. (Example:
equipment rentals, form materials, etc.)"
We recommend that some type of provision be put into the
solicitation for bids and into contracts to accommodate this
interpretation of the new tax law. It is suggested that the
September 16, 1991
Page 2
following language be included in solicitation for bids, to-wit:
SALES TAX ON TANGIBLE PERSONAL PROPERTY INCORPORATED INTO
/ ~R MADE A PART OF THE PROJECT.
The bidder shall not include or provide for sales tax on
~I~~~ tangible personal property to be incorporated into the
· project. In order to be exempt from the sales tax on such
tangible personal property, the contract shall separate and
, provide separate charges for materials to be incorporated into
the project from charges for labor. The City will provide the
contractor with an exemption certificate for the materials.
The contractor is expected to issue a resale certificate in
lieu of paying a sales tax at the time of purchase~"'~
~ If the above, or a similar provision, is placed in the
' solicitation for bids then the contract when entered into should
provide for separate charges to be made for such materials and
charges to be made for labor. It is necessary that the contract
:separate such charges in order to be eligible for the exemption
from sales tax. It is necessary that this separation be contained
in the contract entered into between the City and the contractor.
If the above suggested procedure is adopted, it is our opinion
that this would then qualify such materials for exemption from the
sales tax.
If you have any questions about this, please let me know.
Very truly yours,
NICHOLS, JACKSON, KIRK & DILLARD
'~,~6~ /~ By: / Lawrence W~,~ackson