34 Tex. Admin. Code § 3.319 - Prior Contracts
(a) Definitions.
The following words and terms, when used in this section, shall have the
following meanings, unless the context clearly indicates otherwise.
(1) Bid--A written offer by a seller directed
to a specific person making a binding commitment to perform a contract for
specified work and labor or for supplying specified taxable items at a
specified price. A general statement by a seller listing current prices is not
a written bid.
(2) Contract--A
written agreement between two persons binding one party to perform specified
work and labor or to supply specified taxable items to another party at a
specified price. A purchase order issued by a purchaser may qualify as a
contract only if signed and dated by the seller.
(3) Enabling legislation--A bill passed into
law by the Texas Legislature that authorizes an exemption for prior contracts
or bids.
(4) Prior contract or
bid--A bid offered or a contract signed before any change in the tax rate or
tax base. A purchase order issued by the purchaser prior to a rate change is
not a prior contract unless signed and/or fulfilled by the seller prior to the
rate change.
(5) Third-party
contract--A contract between the purchaser of the items for which exemption is
claimed and a party other than the seller of the items for which exemption is
claimed.
(b) Exemptions.
(1) Tax rate increase. Taxable items
purchased, leased, or rented for use in the performance of a third-party
contract or bid signed on or before the date provided for prior contracts in
the enabling legislation are exempted from the amount of the increase in the
tax rate.
(2) Tax base increase.
Taxable items purchased, leased, or rented that are the subject of a contract
or bid signed on or before the date provided for prior contracts in the
enabling legislation are exempted from a change in the tax base.
(c) Exceptions.
(1) Cancellation clauses. A cancellation
clause in a contract will not cause the loss of a prior contract
exemption.
(2) Change orders.
Change orders that constitute additions to the contract or increases in
coverage or taxable items, labor or services added to the contract are not
included in the prior contract exemption. The original part of the contract may
still retain its prior contract exemption if the change orders can be
separately identified.
(3) Renewals
or extensions. Any renewal or exercise of an option to extend the terms (either
by action of either party to the contract or automatically) will be considered
a new contract.
(4) Price changes.
A contract will not lose the prior contract exemption solely due to a change in
price if:
(A) the parties intend that the
contract shall remain binding regardless of the change in price; and
(B) the contract does not expressly provide
that changes in price terminate the contract.
(5) Tax pass-through clauses. Any contract
whose terms state the customer will be liable for any tax rate increases or for
the applicable tax rate will not qualify for the prior contract exemption, even
though the contract was in effect prior to the tax rate change. Such phrases
are intended to transfer the burden of the tax increase from the seller to the
customer and violate the statutory qualifications for exemption. Note: this
paragraph applies only to tax rate increases and not to new services added to
the tax base.
(6)
Fixed-price/as-needed terms. Contracts that contain a fixed price that must be
paid whether or not the service is performed, and specify the work to be
performed by type and quantity, and contracts that state that "services or
taxable items will be supplied as needed or upon request" will qualify as prior
contracts if they otherwise meet the requirements of this section.
(7) Bids vs. contracts. A bid submitted prior
to a change in the tax rate or base and a contract signed after the change
pursuant to that bid will qualify for the prior contract exemption if the terms
of the contract are substantially similar to the original bid.
(8) Transfer of contracts. With the exception
of contracts that may be substantially changed or modified, a contract that is
transferred by either party will retain its prior contract exemption so long as
the transferee is bound by the original terms of the contract.
(d) Records. Persons claiming the
prior contract exemption must maintain records which may be verified by audit.
Failure to maintain adequate records subject to examination by the comptroller
results in an automatic loss of the exemption. Written notice of prior
contracts or bids should not be sent to the comptroller; however, the prior
contracts or bids should be available for review upon request.
(e) Prior contracts/limitations. This section
applies only when there is enabling legislation. The effective date and statute
of limitations date on prior contracts will also be governed by the enabling
legislation.
(f) Identification
number. An identification number is required on prior contract exemption
certificates furnished to sellers. The identification number should be the
person's sales or use tax permit number, if the person issuing the certificate
is required to hold a permit under the terms of the Tax Code. If a permit is
not required, the person's federal employer's identification (FEI) number or
social security number may be used. A suggested form for the exemption
certificate is a part of this section.
Notes
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