Tax Code sec. 151.311 permits contracts to purchase materials, consumables, and incorporated taxable services tax-free when improving real property for an exempt entity.  In her May 2010 Tax Policy News, the Comptroller advises that if a contractor fails to verify that its customer is registered with the Comptroller as an exempt entity by utilizing the online exempt entity database, then the contractor may be assessed sales and use tax on all of its purchases.  As an alternative, the customer may provide the contractor with a copy of the Comptroller’s written approval the customer’s tax exempt status.  The contractor should retain a copy of its online verification or the Comptroller correspondence for its records.  The Comptroller advises that obtaining an exemption certificate from the customer will not protect the contractor.