Eonorable Robert S. Calvert                                opinion No. c-
Comptroller of'Public Accounts
Capitol Station                                            Re:     Review of Attorney
Austin, Texas                                                      General's^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 Opin-
ion No. WW-1469: dated December 6, 1962, addressed.to Honor-
able 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.trk%%~~'~ti'ii'e-
               iixticdTyxF*-seller
               -.-.                              to thcqurchaser
                                                             ,.-_---
               pursuant-to a valid written contract exe-
               cuted prior           to September 1, 1961, the con-
                                 __.--
               ~~~~b~~~nrr
               _.----~..--!a--~      a contract
                                        .---__- of sale of tanzj.blc
               pers?~&,,~roperty in a certj&iiY~~$~~~~a~-
               tity & a cert+&n fixed Erice witn aelive-r-x
               to be
               E;er   ..i.on certainy%%?iates
                         -..l.~i61-~andnoticeofsuch        after    Septem-
                                                              ..~~~~~~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;eof the Act?"
                (Eiill)lG1::.I,S  aridedby 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'lLedattcnt1on    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              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\rticle2O.O3,,Chapter 20, Title 122A, Taxation-
         General, 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 prop-
         crl;
            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?-czni-
          ~~-..-
         zy at a certain fixed price with delivery to be on certain
         fixed dates aft,erSeptember 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.nvolvcdJ.sa "contract
        0;':x3(?'".No mcnLion is made of any contract between eltiler
        :.hcseller or purchaser and a third party. or anything per-
        Lainins 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'heseller and purchaser as above mentioned provides
        -_-^--
        an exemption from the taxes imposed by the Act.
                Opinion No. k&i-1489above 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 con-
                   sumcr rrom all the taxes imposed by Cl~:l.p-
                   ter 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 writ-
                   ten contract executed prior to Septem-
                   ber 1. 1961, with delivery to be on
                   cer,tsinfixed 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 en-
              tered 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 Attor-
    ney and holds that if a seller and purchaser entered into a
    contract of sale before September 1, 1961, the proceeds of
    ?ce sale co~uldbe 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 Bxe-
              cuted Prior to the Effective Bate of this




              mitted prior to the effective date of this
              Chapter which bid or bids could not be
                      or withdrawn on or after.that
              .?,lkered

                               -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 para-
          graph (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 Andypurchaser 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,ellhim 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 pur-
chaser, as for example, A, a lumber dealer, contracts with 3.
a contractor, for B to build a house for A with an agreement
that llwill 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.
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            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 ac-
            count 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 obli-
                      gation'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 ~changeor modlfl-
                      cation by reason of a tax imposed by
                      this Chapter."
                    In ot,herwords, 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
            ': I,-
            t;~:~~in many instances contractors are requirea to accompany
            bids with certified checks calling for a penalty to be paid If
I           they fall to enter into a contract If it in awarded to them.
                   You are advised that we have reviewed tipinlonNo.
1           4,!-14.89
                    and are of ~the opinion that It should be overruled.
1
                                 SUMMARY
                         The provisions of Paragraph (H) of Arti-
                   cle 20.04, Chapter 20, Title 122A, Taxation-
                   General, 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,
                                        WAGGONER CARR
                                        Attorney General of Texas


                                        By:
                                                  Assistant
         HGC/jp
         APPROVED:
         ,OPINION COMMITTEE
         W. V. Geppert, Chairman
         John Reeves
         Ernest Fortenberry
         Jerry Brock
         APPROVED FOR THE ATTORNEY GENERAL
         By: Stanton Stone
