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HomeMy WebLinkAboutRes 2010-09-09 Economic Development Agreement with Bloomfield Properties.pdfCITY OF ANNA, TEXAS RESOLUTION NO. 2010-09-09 A RESOLUTION OF 'rHE CITY OF ANNA, TEXAS APPROVING AN ECONOMIC DEVELOPMENT AGREEMENT WITH BLOOMFIELD PROPERTIES INC. WHEREAS, the City of Anna, Texas (the "City") and Bloomfield Properties Inc. ("Grantee") desire to enter into an Economic Development Agreement (the "Agreement"); and WHEREAS, the City Council of the City of Anna, Texas finds that approval of the Agreement is in the best interest of the citizens of Anna; NOW THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF ANNA, TEXAS THAT: Section 1. Recitals Incorporated The recitals set forth above are incorporated herein for all purposes as if set forth in full. Section 2. Approval of Agreement The Council hereby approves the Agreement, attached hereto as EXHIBIT 1, incorporated herein for all purposes and authorizes the City Manager to execute same on its behalf. PASSED AND APPROVED by the City Council of the City of Anna, Texas on this 28th day of September 2010. ATTEST: @enR. . • Mayor Res. 2010-09-09 Approving Economic Development Agreement wlBloomfleld Properties.doc PAGE 1 OF 1 09-28-10 City of Anna, County of Collin, State of Texas. Economic Development rail nt This Economic Development Agreement (this "Agreement") is entered into by and between the City of Anna, Texas, (the "City"), a home rule municipal corporation of the State of Texas, and Bloomfield Properties, Inc., (the "Grantee"), for the purposes and consideration stated below. RECITALS Whereas, the City has established guidelines and criteria for economic incentive programs authorized by Texas law and approved by the City Council, including those authorized by Chapter 380 of the Texas Local Government Code, to promote state or local economic development and to stimulate business and commercial activity in the City; and Whereas, the City finds that the Program set forth in this Agreement will promote state or local economic development and stimulate business and commercial activity in the City, and Whereas, the Grantee wishes to establish and maintain a place of business within the corporate limits of the City; and Whereas, without this Agreement, the Grantee would not establish a place of business within the City; and Whereas, the Grantee has made application to the City for consideration of economic incentives in accordance with the City's established guidelines and criteria; Now, therefore, in consideration of the mutual benefits and promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: SECTION 1. AUTHORIZATION This Agreement is authorized by Chapter 380 of the Texas Local Government Code, and by Resolution No. Zaln IyQ o9 of the City. SECTION 2. DEFINITIONS 2.1. "Grantee" shall mean Bloomfield Properties, Inc., and all companies or entities under common control, controlled by or controlling Bloomfield Properties, Inc. For purposes this Agreement, the term "control" shall mean the ownership of fifty percent (50%) or more of the Grantee as determined by vote or value. 2.2. "Program" shall mean the economic incentive program established by the City pursuant to Chapter 380 of the Texas Local Government Code. 2.3. "Program Grant" shall mean the amounts paid by the City in accordance with Section 4 of this Agreement. 2.4. "Project" shall mean Grantee's location of a place of business for sales and use tax situs purposes as defined in Texas Tax Code §321.002(a)(3), as amended, within the City that complies with all applicable City regulations including the City's zoning ordinance, building codes, and other development regulations. 2.5. "Project's Sales Tax Revenue" shall mean the one percent municipal sales and use tax authorized by Chapter 321 of the Municipal Sales and Use Tax Act, paid by the Grantee and received by the City and this definition excludes: (1) any additional sales tax that is paid by the Grantee to be received by the City's development corporation(s); and (2) any sales tax in excess of said one percent that the City may at any time become authorized to collect. 2.6. "Year" shall mean the 12 month period beginning with the first month following the execution of this Agreement. SECTION 3. 3.1. This Agreement shall become effective as of the date of execution by both parties. 3.2. This Agreement shall remain in effect until the City has made the Program Grants set forth in Section 4 of this Agreement, or until otherwise terminated under the provisions of this Agreement. SECTION 4. PROGRAM GRANTS 4.1. The City shall provide a Program Grant to the Grantee consisting of monthly payments in accordance with Section 4.3 and Section 6 of this Agreement for each calendar month for a ten-year period following the execution of the Agreement. 4.2. This Agreement shall expire upon the expiration of said ten-year period unless the parties duly consent to and sign a written extension of this Agreement. 4.3. The monthly Program Grant provided for in Section 4.1 shall be measured by 100% of the Project's Sales Tax Revenue for the corresponding period. SECTION 5. DOCUMENTATION 5.1. Within 30 days of the close of each calendar month for which a Program Grant will be due (such month being referenced in this Section 5 as the "Applicable Month"), the Grantee shall submit to the City a written schedule (the "Schedule") detailing for the Applicable Month the Grantee's total taxable sales and the Project's Sales Tax Revenue. The Schedule and all other documents shall be based on actual taxable sales, and shall not be estimated. The following documents for the Applicable Month must also be submitted with the Schedule: a copy of Grantee's Texas sales and use tax return, including self -assessed use tax amounts, as well as any amended sales and use tax return(s) and any other documents showing adjustments to the sales and use tax return(s) referenced in Sections 5.2 and 5.3. 5.2. Within 30 days of the receipt of any refiind of sales and/or use tax, the Grantee snail notify the City of such refund, provide written documentation of such refund to the City and refund to City any applicable adjustment to prior period Program Grant payments which Grantee has received from the City. 5.3. The Grantee shall notify the City of any audit of Grantee's Texas sales tax returns) conducted by the Office of the Texas Comptroller of Public Accounts, or any successor agency thereof, (collectively, "State Comptroller"), if such audit alters the amounts set forth on the Schedule filed with the City in accordance with Section 5.1. Such notification shall be made as soon as practicable, but in no event later than 30 days after the audit is completed. 5.4 The City shall have the right to audit and make copies of the Grantee's books, records, documents and other evidence relating to this Agreement or Grantee's sale tax revenue, collection or payment. SECTION 6. PROGRAM GRANT PAYMENT DUE DATE 6.1. On an ongoing basis during the term of this Agreement, the City shall pay the amount of each Program Grant to Grantee within 30 days of the date that the City receives from the State Comptroller the Project's Sales Tax Revenues for the corresponding month. In no event shall the City be required to make any Program 3 Grant to the Grantee until it has received from the State Comptroller Project's Sales Tax Revenues equal to or in excess of the Program Grant disbursement. 6.2. The City may withhold payment of the monthly Program Grant if the Grantee fails to provide the documentation required by Section 5.1 of this Agreement. 6.3. The City shall adjust the Program Grant to reflect subsequent adjustments to Grantee's Texas sales tax returns as identified in Sections 5.2 and 5.3 of this agreement. 6.4. Notwithstanding anything to the contrary contained in this Agreement, any undisputed payment under the Program Grant from the City to the Grantee which is not timely mailed within 30 days of receipt of the Project's Sales Tax Revenues by the City from the State Comptroller shall accrue interest at the rate of eight percent per annum from the date the payment was due until mailed to the Grantee; provided, however, the City shall not be held liable for any delay in the Program Grant and shall not owe interest thereon if such delay is due to: (1) Grantee's failure to provide to the City the private letter ruling from the State Comptroller as required under Section 7.1; or (2) force majeure or other causes beyond the City's reasonable control, including but not limited to, strikes, lockouts, war, riots, compliance with any governmental law, rule or regulation, or any acts of nature or other national or local disaster. 6.5. If the City determines that there are disputed amounts with regard to the Project's Sales Tax Revenues, then the City shall notify the Grantee in writing of the disputed amount. The City will not be required to pay or accrue interest on such disputed amount while the dispute is being resolved unless such dispute is unreasonable or made in bad faith, in which case interest at the rate of eight per cent per annum shall be due and payable pursuant to Section 6.4, as though the amount were undisputed, from the time that the payment would have been due had it not been disputed. SECTION 7. OTHER OBLIGATIONS OF THE GRANTEE 7.1. The Grantee will establish and maintain in the City of Anna a place of business as defined in Section 321.002(a)(3) of the Texas Tax Code, as amended, in order to provide a proper and legitimate situs for retail sales resulting in local sales and use tax to the City. Grantee further agrees to obtain a private letter ruling from the Comptroller of Public Accounts of the current requirements to establish and maintain its place of business in the City and agrees to provide a copy of the Comptroller's written response to Grantee's request for a private letter ruling to the City prior to receiving the first Program Grant under this Agreement. Notwithstanding any other provision of this Agreement, any obligation of the City to provide the Program Grant or any part thereof to Grantee shall be abated until the City receives a copy of a written response by the Comptroller. Grantee agrees at all times to comply with the requirements outlined in the private letter ruling from the Comptroller of Public Accounts 7.2. The Grantee agrees to permit the City, its agents or designees, to review the Texas sales and use tax records of the Grantee within normal business hours and at a mutually agreed location. 7.3 The Grantee agrees to execute and deliver to the City the Waiver of Sales Tax Confidentiality attached hereto as Exhibit A in conjunction with their signature of this Agreement. 7.4 The Grantee shall not during the term of this Agreement enter into any other Economic Development Agreement that establishes a place of business for sales and use tax situs purposes as defined in Texas Tax Code §321.002(a)(3), as amended, within another city, town, or local government jurisdiction unless the City or the Grantee initiates termination of this Agreement in writing with 90 days notice to the other party. 7.5 The Grantee shall only use the Project to record the sale of construction materials and related products customarily used in the construction of residential buildings. 7.6 The Grantee shall make reasonable attempts to store inventory of all building materials at its suppliers, but in limited situations may store a small amount of inventory within a fully enclosed structure encompassing no more than 100 square feet at its Project location in Anna to prevent potential theft. 7.7 The Grantee shall ensure that the Project does not result in any additional vehicular traffic on streets in a neighborhood or subdivision where the Project is located that would not otherwise occur as a result of construction activity taking place in that neighborhood or subdivision. 7.8 The Grantee shall become an active member of the Anna Chamber of Commerce and pay annual dues, currently $150 per year, during the term of this Agreement. SECTION 8. DEFAULT AND TERMINATION PROVISIONS 8.1. If either party should default (the "Defaulting Party") with respect to any of its obligations hereunder and should fail within 60 days after receipt of written notice of such default from the other party (the "Complaining Party") to cure such default, then the Complaining Party, by action or proceeding at law may be awarded damages for such default$ provided, further, that (i) the Grantee agrees that its damages shall be limited to any Program Grants, including interest, owed to it by the City under this Agreement at the time of expiration of any such 60-day period to cure, and (ii) the City agrees that its damages shall be limited to the applicable amounts set forth in Section 8.3 and Section 8.4 of this Agreement. 8.2. Should the Project fail to meet the obligations stated in Section 7 of this Agreement, the City shall have the right to terminate this Agreement upon 30 days written notice. 8.3. Should the Grantee terminate or cause the termination of this Agreement, the City shall have no obligation after the termination date to pay Program Grants as might otherwise be required under Section 4 or Section 6 of this Agreement. 8.4. In the event that any act of the Legislature or any law, order, rule or regulation of any state or federal administrative or judicial entity, nullify the terms of this Agreement, or otherwise preclude the performance of this Agreement by either party, then the City shall not require Grantee to repay any portion of the Program Grants received prior to the date this Agreement is nullified, and Grantee shall not require the City to make Program Grant payments after the date this Agreement is nullified; provided, however, that if any such law, order, rule, regulation or audit adjustment results in a requirement that the City refund or return —or otherwise be responsible to compensate for —any part of the Program Grant paid to Grantee under this Agreement, then Grantee shall refund that amount to the City within 30 days of the City mailing a written request to Grantee for such refund. 8.5. Notwithstanding any other provision of this Agreement, the City or the Grantee shall have the right to terminate this Agreement upon 90-days written notice. If written notice is received from either party to terminate this Agreement, all obligations under this Agreement shall end on the behalf of both parties within 90 days of the written notice. SECTION 9. MUTUAL ASSISTANCE 9.1. The City and the Grantee shall do all things necessary or appropriate to carry out the terms and provisions of this Agreement, and to aid and assist each other in carrying out such terms and provisions. 9.2. The Grantee hereby consents to and agrees to cooperate in any request by the City to obtain copies of its Texas sales and use tax returns from the State that contain information required to measure or calculate the Program Grant as referenced within the Waiver of Confidentiality, Exhibit A. The City and the Grantee shall further undertake all reasonable steps to assert detrimental reliance on the private letter ruling referenced in Section 7.1 of this Agreement in the event that the State Comptroller or other authority attempts to invalidate or modify this Project or any other provision of this Agreement. SECTION 10. REPRESENTATIONS AND WARRANTIES 10.1. The City represents and warrants that: (a) The City is a municipal corporation duly organized, validly existing, and in good standing under and by virtue of the laws of the State of Texas; (b) The City has approved this Agreement by Resolution at a public meeting properly noticed under the provisions of the Texas Open Meetings laws; and (c) The City knows of no litigation, proceedings, initiative, referendum, investigation, or the threat of any of the same, contesting the powers of the City or its officials with respect to this Agreement that has not been disclosed in writing to the Grantee. 10.2. The Grantee represents and warrants that: (a) Bloomfield Properties, Inc. has the power and authority to own its properties and to carry on the business as presently conducted and as represented in this Agreement; and (b) This Agreement has been duly authorized, executed and delivered by Bloomfield Properties, Inc.; and Bloomfield Properties, Inc. has all the requisite corporate power and authority to execute, deliver, and perform this Agreement; and this Agreement constitutes a valid and binding obligation of Bloomfield Properties, Inc., as Grantee, and all companies or entities under common control, controlled, or controlling Bloomfield Properties, Inc., and is enforceable in accordance with its terms and conditions; and (c) The Grantee knows of no litigation, proceedings, initiative, referendum, investigation, or the threat of any of the same, contesting the powers of Lite City or its officials with respect to this Agreement that has not been disclosed in writing to the City SECTION 11. INDEMNITY/LIMITATION ON LIABILITY 11.1. It is understood and agreed between the parties that the Grantee and City, in satisfying the conditions of this Agreement, have acted independently, and the City assumes no responsibilities or liabilities to third parties in connection with these actions. The Grantee agrees to indemnify and hold harmless the City from all such claims, suits, and causes of actions, liabilities and expenses, including reasonable attomey's fees, of any nature whatsoever by a third party arising out of the Grantee's performance of the conditions under this Agreement. This Agreement is not a contract for goods or services as defined under Texas Local Government Code § 271.151. Grantee's sole remedy in the event of the City's breach of this Agreement is to seek specific performance of the City's obligations hereunder, including interest, and Grantee expressly waives any remedy for attomey's fees under any statute or cause of action. SECTION 12. SEVERABILITY 12.1. Should any provision of this Agreement be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement. 12.2. In lieu of each and any invalid provision, there shall be added to this Agreement a new provision containing as similar terms as may be possible and yet be valid, legal and enforceable. SECTION 13. INTERPRETATION AND FAIR CONSTRUCTION OF THE CONTRACT 13.1. This Agreement has been reviewed and approved by each of the Parties. In the event it should be determined that any provision of this Agreement is uncertain or ambiguous, the language in all parts of this Agreement shall be in all cases construed as a whole according to its fair meaning and not strictly construed for or against either Party. 13.2. Section or other headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. SECTION 14. DISPUTE RESOLUTION AND VENUE 14.1. This Agreement is made, and shall be construed and interpreted under the laws of the State of Texas, and exclusive jurisdiction and venue for any legal action shall lie in Collin County, Texas. The City and the Grantee agree that all claims, disputes, and controversies arising out of or in relation to the performance, interpretation, application, or enforcement of this agreement, including but not limited to breach thereof, shall be referred to mediation before, and as a condition precedent to, the initiation of any adjudicative action or proceeding; provided, however, there shall be no requirement to mediate after a party provides written notice to the other party of its request to mediate and a mediation is not scheduled within 30 days after the mailing of such notice. SECTION 15 ENTIRE AGREEMENT 15.1. This Agreement contains the entire Agreement between the parties with respect to the Project contemplated herein. SECTION 16 AMENDMENT Vol* This Agreement may only be amended, altered, or revoked by written instrument signed by the Grantee and the City. SECTION 17 NOTICE 17.1. Any notice and/or statement required and permitted to be delivered shall be deemed delivered by depositing the same in the United States mail, certified with return receipt requested, postage prepaid, addressed to the appropriate parry at the following addresses, or at such other addresses provided by the parties in writing. GRANTEE: Bloomfield Properties, Inc. Don Dykstra, President 1050 E Hwy 114, Suite 210 Southlake, TX 76092 CITY: City of Anna Philip Sanders, City Manager 111 N. Powell Pkwy, P.O. Box 776, Anna, Texas 75409-0776 SECTION 18 COUNTERPARTS 18.1. This Agreement may be executed in multiple counterparts, each of which shall be considered an original, but all of which shall constitute one instrument. *REMAINDER OF PAGE INTENTIONALLYLEFT BLANK* 0 SECTION 19 BINDING AGREEMENT 19.1. The terms and conditions of this Agreement are binding upon the successors and permitted assigns of the parties hereto. This Agreement may not be assigned without the express written consent of Grantor, which approval shall not be unreasonably withheld or delayed. EXECUTED this A I day of � �^� , 2010. CITY OF ANNA, TEXAS: ATTEST: Cit Secretary GRANTEE: (President) ATTEST: (Officer) 10 Exhibit A Waiver of Sales Tax Confidentiality Bloomfield Properties, Inc., a Texas corporation (Texas sales tax permit number 32015762365), hereby waives the right of sales tax information confidentiality as provided by Section 321.3022(f) of the Texas Tax Code and authorizes the Office of the Texas Comptroller of Public Accounts to provide any and all information, to the City Manager of the City of Anna, Texas related to sales taxes paid to the City on behalf of Bloomfield Properties, Inc. Bloomfield Properties, Inc. has entered into a sales tax incentive agreement with the City of Anna that requires the submission of this information. This waiver shall be in effect until October 1, 2020 or as provided through subsequent agreement extensions. EXECUTED on this a c1 day of � 2.p �trrb �' , 2010. Bloomfield Properties, Inc., a Texas corporation By: . Don DykTstra President 11 September 30, 2010 Bloomfield Properties, Inc. Attn: Don Dykstra 1050 E Hwy 114, Suite 210 Southiake, TX 76092 Re: Economic Development Agreement with City of Anna Dear Mr. Dykstra, Enclosed are two original Economic Development Agreements and a copy of the Resolution passed by Anna City Council, Tuesday, September 28, 2010. Please sign and return one original document to me for the City's files and keep one for your files. Thank you for your cooperation in this matter. If you have further questions please feel free to contact me at 972-924-3325. Sincerely, N tha Wilkison City Secretary City of Anna Encl. CITY OF ANNA, TEXAS 111 N. POWELL PKWY, P.O. BOX 776 ANNA, TEXAS 75409.0776 PHONE 972-924-3325 FAX 972-924-2620 www.annatexas.gov CITY OF ANNA, TEXAS RESOLUTION N0.2010-09-09 A RESOLUTION OF THE CITY OF ANNA, TEXAS APPROVING AN ECONOMIC DEVELOPMENT AGREEMENT WITH BLOOMFIELD PROPERTIES INC. WHEREAS, the City of Anna, Texas (the y"} and Bloomfield Properties Inc. ("Grantee") desire to enter into an Economic Development Agreement (the "Agreement"}; and WHEREAS, the City. Council of the City of Anna, Texas finds that approval of the Agreement is in the best interest of the citizens of Anna; NOW THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF ANNA, TEXAS THAT: Section 1. Recitals Incorporated The recitals set forth above are incorporated herein for all purposes as if set forth in full. Section 2. Approval of Agreement The Council hereby approves the Agreement, attached hereto as EXHIBIT 1, incorporated herein for all purposes and authorizes the City Manager to execute same on its behalf. PASSED AND APPROVED by the City Council of the City of Anna, Texas on this 2$�' day of September 2010. ATTEST: / ''�� �.1� . .r. IL/ . �.. COMPTROLLER OF PUBLIC ACCOUNTS P.O. BOX 13528 AUSTIN, TX 78711=3528 October 8, 2010 Douglas K. Duffle Duffie & Associates 3104 Joyce Way Grapevine, Texas 76051 RE: 10278417- Texas Place of Business Ruling Request Dear Mr. Duffie, Thank you for your ruling request regarding a Texas place of business, including written confirmation of the most current requirements for a valid Texas place of business for an entity that will primarily purchase building materials for resell in a single location in Anna, Texas. You provided the following information about your client's operation; Entity Structure Bloomfield Homes L.P. (Bloomfield Homes) is a general contractor that purchases building materials from multiple suppliers and incorporates the materials into residential real property improvements in Texas. Bloomfield Homes has recently contracted to purchase a large track of undeveloped residential lots in the City of Anna. When the acquisition is finalized, Bloomfield Homes anticipates having significant business assets and operations in the city for an extended time. Bloomfield Properties, Inc. (BPI} is the general partner of Bloomfield Homes, and BPI currently employees personnel who assist with purchasing building materials as well as other administrative duties on behalf of Bloomfield Homes. When Bloomfield Homes completes the significant acquisition of undeveloped residential lots in the City of Anna, BPI will have employees on -site at the location in the City of Anna. Federal and State Tax I', Issues As a result of prior changes in allowable federal income tax deductions, potential buyers of new residential construction have requested that Bloomfield Homes sell building materials to the buyer directly, so the buyer can take advantage of federal income tax deductions available for sales tax paid during the year. Since Bloomfield Homes does not currently sell tangible personal property or provide taxable services, they are not required to have a sales tax permit. In addition, many lump. sum contractors are not required to have sales tax permits since they pay sales tax on materials which are subsequently incorporated into realty. In order to meet potential buyer requirements, BPI has recently applied for and received a Texas sales tax permit in order to purchase building materials for resale and allow potential buyers of Bloomfield Duffle & Associates 10278417 Oct. 8, 2010 pg. 2 Homes' residential construction to purchase the material components of a house directly and pay the applicable saxes tax to BPI. In situations where Bloomfield Homes constructs new residential homes using lump -sum contracts, BPI will collect and remit sales tax on materials from Bloomfield Homes. As noted in your letter, Since Bloomfield Homes is deemed the consumer of all sales taxes paid on materials incorporated into realty in a lump -sum contract, potential buyers cannot take advantage of available federal income tax deductions. (see Tax Policy News article,dated January 2010, entitled "Sales Tax Deductions on Federal Income Tax Returns", ) http://www.window state tx us/taxinfo/taxpnw/t-pn201.0/tpnl 001 html#issue8 Using the proposed purchasing process simplifies many tax reporting requirements and allows inventory of materials to be purchased consistently for resale to multiple parties. The proposed process avoids requirements for Bloomfield Homes to segregate tax -paid versus tax-free inventory, and the proposed process allows potential buyers of new residential construction to take advantage of federal income tax deduction benefits linked to sales taxes paid on building materials. Purchasing.Processes /Procedures BPI will setup operating /purchasing processes in their single location in Anna to comply with the Comptroller guidance regarding a bona fide place of business by ensuring that the new company has / arranges for the following requirements. • Employees, • Separate books and records, • An operating office (phone lines, office area, signage), « All products to be sold for an amount equal to or greater than cost, • The office orders the products, pays for the products, tracks the orders and deals directly with the vendors when shipments are late, lost or substandard, • The office is not relocating from one city to another in order to obtain a local tax rebate, and • The office will take three or more orders in a calendar year. BPI will accept orders for taxable items from multiple potential buyers, including Bloomfield Homes L.P. and new home purchasers, as well as others. Buyers will be able to select from an extensive selection of building materials at the location in Anna, Texas. You seek written confirmation that BFI's location in Anna, Texas will be considered a valid place of business based on these criteria; and that, as BFI's only place of business in this state, all sales made by BPI at that location will be sourced to Anna. RESPONSE: 2 Duffie & Associates 10278417 Oct. 8, 2010 pg. 3 Before providing a response to your request, I must point out that the federal income tax exemption you mention has not yet been extended to tax years 2010 or beyond. Therefore, this letter ruling does not hinge on, or tie to, federal income tax filing requirements or provisions. But, based on the other information provided, we find that BPI is a separate legal entity that serves a bona fide economic purpose — making sales of taxable items to multiple categories of consumers — and as such, BPI's location in Anna will constitute a bona fide place of business. Therefore, we agree that all sales of taxable goods made at that location by BPI will be sourced to Anna. As you note, Tax Code Section 32L002{a)(3) defines a "place of business of the retailer," for city tax purposes. I've copied the pertinent portions of that definition below: "Place ofbusiness ofthe retailer" means an established outlet, office, or location operated by the retailer or the retailer's agent or employee for the purpose of receiving orders for taxable items and includes any location at which three or more orders are received by the retailer during a calendar year. A warehouse, storage yard, or manufacturing plant is not a "place of business of the retailer" unless at least three orders are received by the retailer during the calendar year at the warehouse, storage yard, or manufacturing plant. An outlet, office, facility, or location that contracts with a retail or commercial business engaged in activities to which this chapter applies to process for that business invoices or bills of lading onto which sales tax is added is not a "place of business of the retailer" if the comptroller determines that the outlet, office, facility, or location functions or exists to avoid the tax imposed by this chapter or to rebate a portion of the tax imposed by this chapter to the contracting business...," In addition to the statutory characteristics that describe a "place of business of the retailer," our office looks at whether a location has economic substance and a valid purpose. Our office has established the following guidelines, based upon the language of § 321.002(a)(3), and the legislative intent behind House Bill 3534 and House Bill 2912, both from the 78a' Regular Legislative Session, 2003, to determine whether a location constitutes a bona fide place of business. • Employees —assigned to, and working out of, the location. + Separate books and records, • An operating office (phone lines, office area, sigriage), • All products are sold for an amount equal to or greater than cost, • The office orders the products, pays for the products, tracks the orders and deals directly with vendors when shipments are late, lost or substandard, and k? Duffie & Associates 10278417 Oct. 8, 2010 pg. 4 whether an existing operation is relocating from one city to another in order to obtain a local tax rebate. Our office may also consider any or all of several other aspects of the business to make the determination, including: • whether all, or substantially all, sales of a business are made to a related entity, such as a parent (i.e., there are no or only nominal sales to other entities) whether a related entity has other operations at the business location whether the business utilizes employees of a related entity under a service agreement, as opposed to hiring its own employees, to conduct all or substantially all of its operations [refer to the enclosed letter, STAR (State Tax Automated Research system) Accession No. 200312286L, particularly paragraphs 1 under the "FACTS" section and 7 under the "RULING" section]. • whether the business has been opened solely for the purpose of reducing or eliminating local tax liabilities under Chapter 321 [opening the business solely to reduce or eliminate the local tax burden would constitute an action "to avoid the tax imposed by this chapter," under the ambit of § 321.002(a)(3)]. It is important to note that our determination of whether a location is a valid place of business does not depend on a single factor or set of criteria. Our office must examine and weigh all factors in conjunction. A fundamental rule of Texas law is that a corporation is a taxpayer separate and distinct from its affiliated entities, shareholders, directors, or officers. But, when such persons abuse the corporate privilege or where the corporate form is unreal or a sham used to circumvent a tax statute, the state may disregard the effect of the corporate fiction and look to the economic reality behind the structure of affiliated entities. Moreover, to permit the true nature of a transaction to be disguised by mere formalisms, which exist solely to alter tax liabilities, would seriously impair the effective administration of the tax policy set forth by the legislature. Thus, when the corporate structure is adopted and/or used for tax avoidance purposes, the general rule is to disregard the form and reach behind the corporate facade to impose tax liability on the principals of the corporation. Higgins V. Smith, 308 U.S. 473 (U.S. 1940); Commissioner v. Court Holding Co., 324 U. S. 331, (U.S. 1945); Delta Pipe Fabricators, Inc. v. Bullock, 638 S.W.2d 652 (Tex. App; Austin 1982, writ refd n.r.e.). Texas courts have held that the corporate fiction may be disregarded, even though corporate formalities have been observed and corporate and individual property have been kept separately, when the corporate fiction has been used to perpetuate a fraud; as a mere tool of another corporation; as a means of evading an existing legal obligation; to perpetrate a monopoly; to circumvent a statute or to Justify a wrong. Castleberry v. Duffie & Associates 10278417 Oct. 8, 2010 pg. 5 Branscum, 721 S.W.2d 270 (Tex. 1986); SSP Partners v. Gladstrong Investments (USA) Corp., 275 S.W.3d 444 (Tex. 2008); Sapphire Homes, Inc. v. Gilbert, 426 S.W.2d 278 (Tex. Civ. App. Dallas 1968, writ refd n.r.e.). Under the circumstances you present, BPI will maintain an operating office in Anna that will be open to the public for the purpose of receiving and processing orders for taxable goods. ne location of the office coincides with the location where the primary business activities of Bloomfield and BPI will occur, and therefore will provide benefit to the city of Anna and its residents. Therefore, as long as members of the public are able to buy goods at BPi's location in Anna, the location will constitute a valid place of business serving a bona fide economic purpose, and as such, we agree that, all sales of taxable goods made at that location by BPI should be sourced to Anna. Complete Texas sales tax information, including rules, state#es, publications, and frequently asked questions can be found on the Sales and Use Tax web page at: M://window.state,tx.us/tax*mfo/sales/. Sign up for a -mail updates on the Comptroller topics of your choice at http://www.window state tx us/subscribe If you have any questions or need additional information, you can reply to this email, call me at 1-800-531-5441 ext. 31810, or write to Tax Policy Division, P. O. Box 13528, Austin, Texas 78711-3528. Our goal is to provide you with prompt, professional service. Please take a moment to complete our on-line survey at httn://aixtcp.cpa.state tx.us/surveysttgsurv2/index html. 1 Team Lead, Sales Tax Section Tax Policy Division Comptroller of Public Accounts 5 October 1, 2010 Ms. Robin Corrigan Sales Tax Policy Leader Texas Comptroller of Public Accounts P.O. Box 13528 Austin, Texas 78711-3528 Dear Robin: We would appreciate you updating prior tax policy guidance regarding a Texas place of business, including written confirmation of the most current requirements for a valid Texas place of business I or an entity that will primarily purchase building materials for resell in a single location in Anna, Texas. FACTS Background Bloomfield Homes L.P. (Bloomfield Homes) is a general contractor that purchases building materials from multiple suppliers and incorporates the materials into residential real property improvements in Texas. Bloomfield Homes has recently contracted to purchase a large track of undeveloped residential lots in the City of Anna. When the acquisition is finalized, Bloomfield Homes anticipates having significant business assets and operations in the city for an extended time. Bloomfield Properties, Inc. (BPI) is the general partner of Bloomfield Homes, and BPI currently employees personnel who assist with purchasing building materials as well as other administrative duties on behalf of Bloomfield Homes. When Bloomfield Homes completes the significant acquisition of undeveloped residential lots in the City of Anna, BPI anticipates having one or more of its employees on -site within a single location in the City of Anna. Federal and State Tax Compliance Issues As a result of prior changes in allowable federal income tax deductions, potential buyers of new residential construction have requested that Bloomfield Homes sell building materials to the buyer directly, so the buyer can take advantage of federal income tax deductions available for sales tax paid during the year. Since Bloomfield Homes does not currently sell tangible personal property or provide taxable services, they are not required to have a sales tax permit. In addition, many lump - sum contractors are not required to have sales tax permits since they pay sales tax on materials which are subsequently incorporated into realty. In order to meet potential buyer requirements, BPI has recently applied for and received a Texas sales tax permit in order to purchase building materials for resale and allow potential buyers of Bloomfield Homes' residential construction to purchase the material components of a house directly and pay the applicable sales tax to BPI. In situations where Bloomfield Homes constructs new residential homes using lump -sum contracts, BPI will collect and remit sales tax on materials from Bloomfield Homes. Ms. Robin Corrigan October 1, 2010 Page 2 of 5 Using the proposed purchasing process simplifies many tax reporting requirements and allows inventory of materials to be purchased consistently for resale to multiple parties. The proposed process avoids requirements for Bloomfield Homes to segregate tax -paid versus tax-free inventory, and the proposed process allows potential buyers of new residential construction to take advantage of federal income tax deduction benefits linked to sales taxes paid on building materials. Since Bloomfield Homes is deemed the consumer of all sales taxes paid on materials incorporated into realty in a lump -sum contract, the potential buyer cannot take advantage of available federal income tax deductions. (see excerpt from an article in Tax Policy News dated January 2010, entitled "Sales Tax Deductions on Federal Income Tax Returns", link attached) httQ//www.window.state.tx.us/taxinfo/taxpnw/tpn2010/tpn 1 OO l .html#issue8 "Taxpayers who built a new home or improved their home in 2009 may be able to deduct sales taxes paid on the materials used in the real property improvement. Labor is not taxable for new construction or residential repair and remodeling. In order for a homeowner to be elble for such a deduction, the homeowner must have purchased the materials directly from, and paid tax to, the building materials supplier, or worked with a contractor under a separated contract. "Lump sum" (one price) contracts are not eligible for the deduction. This is because, under Texas Tax Code Section 151.056(a), a contractor performing a contract for a lump sum price covering both the performance of the service and the furnishing of the necessary material is considered the consumer of all materials incorporated into the project. As the consumer, the contractor pays the sales tax on materials and does not collect tax from the customer. See Rule 3.291. Since the customer did not pay tax to the contractor, the customer cannot deduct the tax on the federal income tax return. Using the proposed approach will dramatically simplify tax compliance and inventory handling and will allow a Texas customer to be eligible for a significant federal income tax benefit. In addition, the proposed approach will avoid some of the unique requirements of separated contracts where all subcontractors and suppliers, rather than a majority of larger ones, would be forced to obtain sales tax permits and purchase their materials for resale to Bloomfield Homes. Using the proposed approach allows the majority of significant building materials to be purchased by BPI, but does not force smaller subcontractors to be burdened with significant new sales tax reporting requirements linked to a sales tax permit. Ms. Robin Corrigan October 1, 2010 Page 3 of 5 Revised Purchasing Processes /Procedures BPI will setup operating / purchasing processes in their single location in Anna to comply with the Comptroller guidance regarding a bona fide place of business by ensuring that the new company has / arranges for the following requirements. Employees, Separate books and records, An operating office (phone lines, office area, signage), All products to be sold for an amount equal to or greater than cost, The office orders the products, pays for the products, tracks the orders and deals directly with the vendors when shipments are late, lost or substandard, The office is not relocating from one city to another in order to obtain a local tax rebate, and The office will take three or more orders in a calendar year. BPI will accept orders for materials from their location in Anna, Texas and allow multiple potential buyers to select from an extensive selection of building materials which will be incorporated into residential realty. LAW &ANALYSIS Place of Business Texas Tax Code Section 321.002(a)(3) defines "place of business" as an established outlet, office or location operated by the retailer or the retailer's agent or employee for the purpose of receiving orders for taxable items and includes any location at which three or more orders are received by the retailer during a calendar year. A warehouse, storage yard or manufacturing plant is not a "place of business of the retailer" unless at least three orders are received by the retailer during the calendar year at the warehouse, storage yard or manufacturing plant. Texas Local Tax Sourcing In determining which municipality's local rate to collect and remit, the relevant consideration is where the sale is consummated. Tex. Tax Code Sec. 321.203 defines consummation of a sale. The pertinent parts of this section state: (a) A sale of a taxable item occurs within the municipality in which the sale is consummated. A sale is consummated as provided by this section regardless of the place where transfer of title or possession occurs. (b) If a retailer has only one place of business in this state, all of the retailer's retail sales are consummated at that place of business except as provided by Subsection (e). Ms. Robin Corrigan October 1, 2010 Page 4 of 5 (d) If neither the possession of a taxable item is taken at nor shipment or delivery of the item is made from the retailer's place of business in this state, the sale is consummated at: (1) the retailer's place of business in this state where the order is received; or (2) if the order is not received at a place of business of the retailer, the place of business from which the retailer's salesman who took the order operates. (e) A sale is consummated at the location in this state to which a taxable item is shipped or delivered or at which possession is taken by the customer if transfer of possession of a taxable item occurs at, or shipment or delivery of the item originates from, a location in this state other than a place of business of the retailer and if. (1) the retailer is an itinerant vendor who has no place of business; (2) the retailer's place of business where the purchase order is initially received or from which the retailer's salesman who took the order operates is outside this state; or (3) the purchaser places the order directly with the retailer's supplier and the item is shipped or delivered directly to the purchaser by the supplier. Applicable /Recent Texas Le isl�ti ation In the 784-h Regular Session of the Texas Legislature during 2003, a bill passed that was relevant to the facts discussed herein. House Bi113534 added new provisions as to what constituted a place of business of a retailer. Section 1 of the bill stated: "Place of business of the retailer" means an established outlet, office, or location operated by the retailer or the retailer's agent or employee for the purpose of receiving orders for taxable items and includes any location at which three or more orders are received by the retailer during a calendar year. A warehouse, storage yard, or manufacturing plant is not a "place of business of the retailer" unless at least three orders are received by the retailer during the calendar year at the warehouse, storage yard, or manufacturing plant. An outlet, office, facility, or location that contracts with a retail or commercial business engaged in activities to which this chapter applies to process for that business invoices or bills of lading onto which sales tax is added is not a "place of business of the retailer" if the comptroller determines that the outlet, office, facility, or location functions or exists to avoid the tax imposed by this chapter or to rebate a portion of the tax imposed by this chapter to the contracting business. Ms. Robin Corrigan October 1, 2010 Page 5 of 5 A prior opinion from the Attorney General of Texas addressed the 2003 legislation. AG Opinion No. GA-0137 stated: House Bill 3534, which amended sections 321.002(a)(3) and 321.203 of the Tax Code, prevented certain outlets, offices, facilities, or locations from qualifying as a "place of business of the retailer" for municipal sales tax purposes. House Bill 3534 did not invalidate existing municipal sales tax rebate contracts nor prohibit municipalities and businesses from executing new contracts. In the most recent Texas legislative session, which ended in May 2009, Senate Bi11636 was passed and signed into law, and among other things, directly impacted the local sales tax sourcing for companies that have multiple places of business in the state. The provisions of Senate Bill 636 become effective on September 1, 2009. The local sales tax sourcing of a company with a single place of business in Texas, such as the specific facts represented above, does not appear to have changed from previous Texas tax policy guidance on this topic. We are not aware of any changes in Texas legislation or tax policy guidance that alters prior written guidance nor are we aware of any additional requirements for a purchasing subsidiary to maintain a single place of business in the state. However, we would appreciate the Comptroller providing written confirmation of our understanding as soon as possible. CONCLUSION BPI plans to purchase building materials for resale to multiple customers, including potential buyers of residential realty who want to take advantage of federal income tax deductions using guidance previously provided by the Comptroller in January 2010. Since BPI has a single place of business in Anna, BPI plans to source local taxes to the location where their customers can make selections of building materials which will be purchased and subsequently incorporated into residential realty. RULING REQUESTED We respectfully request a ruling confirming that BPI will be considered to have a single place of business in Anna based on the facts, law and conclusions contained above. 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