Eonorable Robert S. Calvert

Comptroller of'Public Accounts Capitol Station Austin, Texas opinion No. cRe: Review of General's^

Attorney Opinion No. WW-1469, dated Dear Sir: December 6, 1962.

We have receivedyour letter in which you request that we review the conclusion reached inAttorney General's OpinionNo. WW-1469: dated December 6, 1962, addressed.toHonorable Jim N. Thompson, County Attorney, Lamar County.

In reviewing this opinionwe believe that we should loo:: at **the** history of the request for the opinionmentioned. The CountyAttorney of Lamar County addressed the request to this office for-anopinion on a question statedby him as follows: "Doesparagraph (H) of Article 20.04

of Chapter 20, Title 122A,Vernon's Texas Civil Statutes (theTexas Limited Sales, Excise and Use Tax Act), exemptboth the seller and the purchaser or consumer from all of the taxes imposedby that Act where tangible srsonal propertco be used in Fn% State is vurchas6z-a.trk%%~~'~ti'ii'eiixticdTyxF*-seller to thcqurchaser -.-. ,.- _--- pursuant-to a valid written contract executedprior to September 1, 1961, the con-

__.-- ~~~~b~~~nrr a contract of sale of tanzj.blc _.----~..

--!a--~ .--- __- pers?~&,,~roperty in a certj&iiY~~$~~~~a~- tity & a cert+&n fixedErice witn aelive-r-x to be on certainy%%?iates after Septem- E;er ..i. -.l.~i61-~andnoticeofsuch ..~~~~~~c~.

-. -..-.. :.-.-, **and the**  exclusion claimed under paragraph (H) havingbeen 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

arided by 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'lLed attcnt1on 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 OpinionNo. C- 30

apparently ruled that the use or consumption oi'the property by the purchaser after delivery is subject to the use tax imposedby J\rticle2O.O3,, Chapter 20, Title 122A, TaxationGeneral, 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 imposedby the Act, where the propcrl; y "ispurchased at retail and deliveredby the seller to the **purchaser** pursuant to a valid written contract, **executed** prior to September 1; 1961,the contractbeing-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 fixeddates aft,er September 1, 1961:'. (See the emphasis in the part of the question as above quoted in the preceding paragraph.)

It in apparent that the contractmentioned is only a contract;

between the seller and purchaser. for the request **:;jx?c:Ll ’** **.ic:llly StnLcr,**  that the contract J.nvolvcd J.s a "contract 0;':x3(?'".

No mcnLion ismade of any contractbetween eltiler :.hcseller or purchaser and a third party. or anything perLainins to se propertybeing,"used for the performance of a VWiLtCIl contract" as provided in the statute.

The brief abovementioned.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 imposedby the Act.

Opinion No. k&i-1489 abovementioned: 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:
"Webelieve that paragraph (II) cxcmpts both the seller and the purchaser or consumcr rrom all the taxes imposedby Cl~:l.pter 20 where tangiblepersonal property to bc used in this State is purchased at retail and delivered **by** the seller to thepurchaser pursuant to a valid written contract executedprior to September 1. 1961, with delivery to be **on** cer,tsinfixed dates after September 1. li)i;l. in a certain fixed quantity at a certain fixedprice." 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,,

exemptsboth the seller and purchaser or consumer from all the taxes imposedby Chapter 20, when tangiblepersonalproperty is sold pursuant to a written contract entered intopriorto September 1, 1961, provided that the express conditions of paragraph (H)aremet."
In view of the above statements, said opinion can only be construed as upholding the contention of the County Attorney and holds that if a seller andpurchaser entered into a contract of salebefore September 1, 1961, the proceeds of ?ce sale co~uld

be exemptby giving notice of the contract to the Comptroller as providedby the statute.
We have alreadynoticed the ruling of the Comptroller as statedby the CountyAttorney that the transactionwould be subject to the use tax imposedby Article 20.03, if used - or consumedby the purchaser.

In view of the above holdings,we are constrained to hold that OpinionNo. w-1489 is in error and that the same shouldbe overruled for the reasons hereinafter stated.
As stated in the opinionmentioned, 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 Bxecuted Prior to the Effective Bate of this

mitted prior to the effectivedate of this Chapter which bid or bids could not be .?,lkered

or withdrawn on or after. **that**
-130-Honorable Robert S. Calvert, Page 4 Opinion No. C- 30

date and which bid or bids and contract entered intopursuant thereto are at a fixedprice not subject to change or modificationby 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 paragraph (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." (Emphasisadded. B It is to be noticed that the statute does not refer to a contractbetween 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 firstplace, why should the proceeds from a saleby a contractbetween the seller Andy purchaserbe exempt from the taxes imposedby 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 contractbetween the seller and purchaser are exempt from the tax, then it would have been an easymatter for any person to enter Into a contract with some merchant to s,ell him certain products for any number of years at a predeterminedprice 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 soldproperty Is u-for the performance of

-- a written contract entered Intobefore the effective date of the act". It appears, therefore, that it was the intention thet the contractmust be one between the purchaser and a third party and not between the seller and the purchaser. Assuming, without passing upon same,~itmay be possible that the statute could cover a contractbetween the seller and purchaser, as for example,A, a lumber dealer, contracts with 3. a contractor, forB to build a house for A with an agreement that llwill purchase fromA all lumber used in constructing the house. Rqwever, In such case, B would be using the lumber to "performthe contract" to build the house fzr-A-hndwould noL be usix the lumber to perform the contract of sale of

_-_ the lumber.. .
Honorable Robert S. Calvert, Page 5 OpinionNo. C- 30

We believe that the purpose of the provisionmentioned was to make provision for such persons as contractorswho have entered into constructioncontractsbased upon,the fact that the contractor could.purchasecertainmaterials at certain prices without a tax on the sale of thematerials 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 inperforminghis contract. The Legislature did not want to make a person who had made a bona fide contract before the effectivedate of the act to suffer a loss on account of the act.
.

The view justmentioned is further strengthenedby the alternativeprovision in the second (Ii)provision of the sectionwhich provides for an exemption from the receipts of the sale where the property Isused, which provision reads as follov~s: 11 or (Ii)pursuant to the obligation'oi.

a bid or bids submittedprior 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 modlflcation by reason of a tax imposedby this Chapter."
In ot,her

words, we see that the exemptionprovided for by reason of a prior contract is for theprotection of con- -Lrhctors(1)who have already contracted or (2)who havemade a bid and cannotbe relieved from the bid. It is well known

. , t;~:~~ inmany instances contractorsare requirea to accompany ':I,- I bids with certified checks calling for a penalty to be paid If

they fall to enter into a contract If it in awarded to them.
1 You are advised that we have reviewed tipinlon No. 1 4,!-14.89

and are of ~theopinion that It shouldbe overruled.

SUMMARY The provisions of Paragraph (H) of Article 20.04, Chapter 20, Title 122A,TaxationGeneral, V.C.S., exempting the receipts from the sale, use or rental of, and the storageuse or other consumptionof tangible personalproperty when used for the performance of a contract entered Intoprior to the effectivedate of

.. ., .

Honorable Robert S. Calvert, Page 6 Opinion No. C- 30

the Act, do not apply to a mere contract of sale of tangiblepersonal property,but only to a contractmade by the purchaser to be used for the performance of a contract. Opinion No. W-1489 IS overruled.

Yours very truly,

HGC/jp APPROVED: ,OPINIONCOMMITTEE W. V. Geppert, Chairman John Reeves Ernest Fortenberry Jerry Brock WAGGONER CARR Attorney General of Texas

By: Assistant

APPROVED FOR THE ATTORNEY GENERAL By: Stanton Stone