200310355H   



HEARING NO. 43,812 


RE:  ************** 
TAXPAYER NO.:  **************
AUDIT OFFICE:  **************  
AUDIT PERIOD:  02/01/93  THROUGH  12/31/96 

SALES AND USE TAX/RFD 

BEFORE THE COMPTROLLER 
OF PUBLIC ACCOUNTS 
OF THE STATE OF TEXAS 

TIMOTHY MASHBURN 
Administrative Law Judge 

ROBIN ROBINSON 
Representing Administrative Hearings Section 

**************
Representing Claimant 


COMPTROLLER'S DECISION


PRELIMINARY DISCUSSION:

At Claimant's request, the Decision in this case is based on the written 
submissions of the parties and is issued pursuant to Expedited Hearing Rule 
1.13.  Claimant has waived the issuance of a Proposed Comptroller's Decision.  

The Administrative Law Judge (ALJ) has taken official notice of all records of 
the Comptroller's office that pertain to the Claimant and the issues involved 
in the case.  Unless otherwise indicated, all Section references are to TEX. 
TAX CODE ANN. (Vernon 2002) and all references to Rules are to Title 34, Texas 
Administrative Code (2002). 

CLAIMANT'S CONTENTIONS:

1.  Claimant contends that its purchases of janitorial and building maintenance 
services pursuant to its airport terminal lease agreements were exempt 
purchases for resale. 

2.  Claimant contends that its purchases of mechanical maintenance services 
were exempt under Section 151.311(c) as services purchased in the performance 
of a real property contract for an exempt entity. 

FINDINGS OF FACT:

1.  ************** (Claimant) is a commercial airline.

2.  Claimant was audited for sales and use tax compliance for the period 
February 1, 1993, through December 31, 1996, as a result of which a Texas 
Notification of Audit Results dated October 9, 1998, was issued, reflecting a 
tax deficiency, penalty, and interest through the date of the notice.  
Claimant's timely request for redetermination resulted in Hearing No. 38,931.

3.  The contentions asserted in this hearing by Claimant were included in those 
raised in Hearing No. 38,931.  In Comptroller's Decision 38,931 (2003), the 
contentions asserted here were expressly considered and were denied.

4.  The evidence presented here relating to the contentions under review is the 
same evidence presented in Hearing No. 38,931. 

5.  Under terminal lease agreements of long standing, airport premises at the 
************** (AIRPORT A) and the ************** (AIRPORT B) are leased by 
Claimant.  Pursuant to those agreements, Claimant was required to keep the 
leased premises in good repair and clean condition.

6.  Claimant purchased janitorial cleaning services from ************** 
(COMPANY A), ************** (COMPANY B), and ************** (COMPANY C) during 
the relevant period to fulfill its lease contract commitments at AIRPORT A and 
AIRPORT B.  

7.  On August 1, 1992, Claimant entered into a Mechanical Maintenance Services 
(MMS) Agreement with COMPANY D, under which COMPANY D provided the daily 
operation and maintenance, 24 hours per day, for mechanical systems, electrical 
systems, fire protection systems, plumbing, roof drainage systems, and general 
maintenance, including minor repairs to walls, ceilings, roofs, fencing, and 
overhead doors, at PETITIONER Terminal **************, PETITIONER Mail Sort 
Facility, PETITIONER Cargo/Cabin Services Facility, and PETITIONER 
************** Facility, all located at AIRPORT A.  

8.  Under the MMS Agreement, COMPANY D developed and monitored comprehensive 
operating and maintenance plans, provided on-site personnel to execute such 
plans, maintained on-site inventories of expendable supplies, was responsible 
for preventive maintenance and monitored utility usage.  Not included in its 
responsibilities were non-maintainable items (foundations and structural 
components, piping and the like), repairs as a result of fire, explosion or 
natural causes, or misuse, replacements of components upon reaching normal 
service lives, or maintenance of specific PETITIONER equipment.

9.  The MMS Agreement made no provision for any responsibility for any 
erection, construction or alteration of any building, structure or permanent 
real property improvement.  Paragraph 3.5 thereof refers to "repairs to walls, 
ceilings and roofs (minor repair)" as "General Maintenance."

DISCUSSION AND CONCLUSIONS OF LAW:

Claimant's first contention should be denied.

Under Section 151.302, sales for resale are exempt.  The statutory definition 
of "sale for resale" is provided by Section 151.006, which requires that the 
sale be to a purchaser whose purpose for the purchase is to resell the same in 
the normal course of the purchaser's business.  Claimant asserts that the 
janitorial and building maintenance services it purchased were exempt purchases 
for resale under Section 151.302 because its leases with the airport 
authorities required that it provide janitorial and building maintenance 
services and the same were provided to the airport authorities as a component 
of the consideration it transferred under the lease agreements.  The AHS 
responds that there was no sale of the janitorial and building maintenance 
services to the airport authorities.  

Claimant is not in the business of providing janitorial or maintenance 
services.  The sales of the involved services were consummated to enable 
Claimant to fulfill legal obligations under the lease agreements to maintain 
the leased premises in a clean and safe manner.  That the services were also 
fundamentally required for the benefit of Claimant's customers appears obvious, 
and thus they inured directly to the benefit of Claimant and its airline 
business as well.  They were not consummated for the purpose of resale to the 
airport authorities within the meaning of Section 151.006 as contended by 
Claimant and were therefore not exempt under Section 151.302.  Comptroller's 
Decision 38,931 (2003) so held and no effort has been made here by Claimant to 
demonstrate any reason or basis, factual or legal, for disturbing such holding.

Claimant's second contention should also be denied.

Claimant alternatively asserts that the services it purchased under the MMS 
Agreement were exempt as taxable services purchased in the performance of a 
real property contract for an exempt entity pursuant to Sec. 151.311(c), which 
provides: 

(c) The purchase of a taxable service for use in the performance of a contract 
for an improvement to realty that is performed for an organization exempted 
under Section 151.309 or 151.310 of this code is exempt if the service is 
performed at the job site and if:

(1) the contract expressly requires the specific service to be provided or 
purchased by the person performing the contract; or

(2) the service is integral to the performance of the contract.

Section 151.311(c) exempts only services that are provided for use in the 
performance of a contract for an improvement to realty for a qualifying exempt 
organization.  As shown by the foregoing findings, mechanical systems operation 
and maintenance was the essence of the MMS Agreement.  No real property 
improvement was contracted for or provided.  

Claimant cites Comptroller Decision No. 28,141 (1991) in support of its 
position, asserting that taxable repair, remodeling and restoration services 
are within the Section 151.311(c) exemption.  Real property remodeling services 
were involved in Comptroller's Decision 28,141, not systems operations, 
maintenance and minor repairs as provided in the MMS Agreement.  

Comptroller's Decision 38,931 (2003) held that Section 151.311 has no 
application to the services provided under the MMS Agreement.  Such holding is 
reaffirmed for the reasons stated there and above.

RECOMMENDATION:

Based upon the findings of fact, conclusions and discussion set forth herein, 
the ALJ recommends that Claimant's contentions and the refund claim under 
review be denied.

SIGNED  October 30, 2003.


TIMOTHY MASHBURN
Administrative Law Judge


HEARING NO.:  43,812


ORDER OF THE COMPTROLLER


The above decision of the Administrative Law Judge is approved and adopted in 
all respects.  This decision becomes final twenty-three (23) days from the date 
of this Order.

If a rehearing is desired, a Motion for Rehearing must be filed with the 
Administrative Law Judge no later than twenty-three (23) days after the date of 
this Order, and must state the grounds upon which the motion is based.

RENDERED and ISSUED October 30, 2003.


CAROLE KEETON STRAYHORN 
Texas Comptroller 




ACCESSION NUMBER: 200310355H   
SUPERSEDED: N 
DOCUMENT TYPE: H 
DATE: 10/30/2003 
TAX TYPE: SALES