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 received your letter in which you request that 

we review the conclusion reached in Attorney General's Opinion No. WW-1469: dated December 6, 1962, addressed.to Honorable 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.t rk%%~~'~ti'ii'eiixticdTyxF*-seller to thcqurchaser -.-. ,.- _- -- 

pursuant-to a valid written contract executed prior __.-- 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 fixed Erice 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) 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;e of 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. ;i oi 

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\rticle 2O.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 imposed by the Act, where the propcrl; 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?-cznizy at a certain fixed price with delivery to be on certain 

fixed dates 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 contract mentioned 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 is made of any contract between eltiler 

:.hc seller or purchaser and a third party. or anything perLainins 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'he seller and purchaser as above mentioned provides 

an exemption from the taxes imposed by the Act. 

Opinion No. k&i-1489 above 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 consumcr rrom all the taxes imposed by Cl~:l.pter 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 written contract executed prior to September 1. 1961, with delivery to be on 

cer,tsin fixed 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 entered 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 Attorney and holds that if a seller and purchaser entered into a 

contract of sale before September 1, 1961, the proceeds of 

?ce sale co~uld be 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 Bxecuted Prior to the Effective Bate of this 

mitted prior to the effective date 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 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 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." (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 Andy purchaser 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,ell him 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 purchaser, as for example, A, a lumber dealer, contracts with 3. 

a contractor, for B to build a house for A with an agreement 

that ll will 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 account 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 obligation'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 ~change or modlflcation by reason of a tax imposed by 

this Chapter." 

In ot,her words, 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 

. , t;~:~~ ': I,- in many instances contractors are requirea to accompany 

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 ~the opinion that It should be 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 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, 

HGC/jp 

APPROVED: 

,OPINION COMMITTEE 

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