How did Texas tax labor for residential carpet, wall-covering, flooring, and drapery work, and when were installed draperies treated as improvements to realty?

Plain-English summary

Labor for the listed residential carpet, wall-covering, and vinyl or tile flooring repair, replacement, and new installation was not taxable. The letter said the labor answer did not change for rental real estate.

Drapery labor was the exception. Draperies were treated as an improvement to realty only when they were permanently integrated so removal would substantially damage the realty; when the purchaser intended immediately to transfer the installed draperies and realty together; or when installation occurred in a construction contract for which the contractor was responsible.

In other circumstances, draperies were tangible personal property. Their repair or replacement had been taxable since October 2, 1984, and installation charges connected with their sale became taxable October 1, 1987. Before then, separately stated installation was not taxable.

The letter asks whether both labor and materials were taxable, but its answer expressly addresses labor. It does not separately state a general materials conclusion for the other listed products.

What this means for you

The historical treatment turned on whether draperies remained personal property or became part of a real-property construction transaction. Installation in a new house did not stand alone as the test; the letter focused on attachment, immediate transfer with the realty, and the contractor's responsibility.

Common questions

Was residential carpet or flooring labor taxable? No, for the repair, replacement, and new-installation labor described.

Did rental housing change that labor result? No.

Were ordinary drapery installation charges taxable? Yes from October 1, 1987 when connected with a drapery sale, unless the draperies met one of the stated realty or construction tests.

Did the letter give a general answer for materials? No. Its operative answer separately discusses labor and drapery treatment.

Citations and references

• 34 Tex. Admin. Code Rule 3.357(a)(6) (residential property definition)
• 34 Tex. Admin. Code Rule 3.357(b)(1) (repairmen and remodelers)
• 34 Tex. Admin. Code Rule 3.291 (contractors)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8711L0847C11

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

November 26, 1987

Dear ****:

Thank you for your recent letter concerning the approaching sales tax
changes on real property repair and remodeling.

In your letter, you requested a clarification of the taxability of the
following situations:

1. Residential real estate occupied by the customer as his principal
   residence.

Question: Is labor as well as material taxable under the
following:

a. Repair (replacement) of draperies, carpet, wall covering and/or vinyl
or tile flooring.

b. New installation of a above.

2. Does your answer change if this is rental real estate?

The labor will not be taxable in either of the above situations, except
for the labor related to the repair (replacement) and/or installation of
draperies. Draperies will be treated as an improvement to realty only under
the following circumstances:

1. The draperies are so permanently attached and integrated into the
   realty that removal would substantially damage the realty. For example,
   motorized drapes in an office building that would require dismantling the wall
   to remove.

2. The purchaser of the draperies intends to immediately transfer both
   the installed draperies and the realty in one transaction as a sale of real
   property. For example, a contractor hires a third party to fabricate and
   install draperies in a house that is being built. Since the house and all
   attachments will be immediately transferred by the contractor, the third party
   will be considered a subcontractor and not a seller and installer.

3. The installation of the draperies is taking place in a construction
   context with the contractor being responsible for installation as a part of
   the contract. For example, a homeowner hires a contractor to add two rooms to
   an existing house and totally remodel the interior. During the course of
   remodeling, the contractor hires a third party to fabricate and install
   draperies. This third party will be considered a subcontractor and not a
   seller and installer.

Draperies, under any other circumstances, are considered tangible
personal property. Repair/replacement of draperies has been taxable since
October 2, 1984. Installation charges connected with the sale of draperies
became taxable on October 1, 1987. Previously the installation was not taxable
if separately stated to the customer.

Rule 3.357(a)(6) defines residential property as "Property used as a
family dwelling or a multifamily apartment or housing complex, condominiums or
retirement homes. The term does not include hotels or any other facilities
which are subject to the hotel occupancy tax."

Rule 3.357(b)(1) states "All repairmen and remodelers must obtain a Texas
sales and use tax permit unless they are working exclusively on residential
property. Persons who are constructing new facilities or are repairing or
remodeling residential property should refer to Rule 3.291 (relating to
contractors)."

Rule 3.291 is enclosed for your information.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

If you have any questions or need more information, please call me at
1-800-252-5555 toll free from anywhere in Texas. The regular number is
512/463-4600. You may write me at the Tax Policy Division.

Sincerely,
Julie Pesl
Tax Policy Division