How did Texas distinguish residential carpet installation, nonresidential carpet replacement, and carpet installed in new construction after January 1, 1988?

Plain-English summary

The Comptroller said residential carpet sales and installation would continue under contractor Rule 3.291 after January 1988. The same rule covered nonresidential installations only through December 31, 1987.

Beginning January 1, 1988, replacing carpet anywhere other than a residence was real-property remodeling, and the total charge was taxable whether or not labor and materials were separately stated.

Carpet installed under a new-construction contract remained contractor work under Rule 3.291. The letter included added square footage and finish-out of previously unoccupied space as new construction. A contract mixing remodeling and new construction was taxable in full unless the labor for carpeting the newly constructed area was separately stated.

For real-property remodeling after January 1, the installer could give a resale certificate when buying carpet and pad, even for a federal-government job.

What this means for you

The historical result turned on residential versus nonresidential use, replacement versus new construction, occupancy, and whether new-construction labor was separately stated in a mixed job.

Common questions

Was residential carpet installation treated as taxable remodeling? No. The letter kept it under contractor Rule 3.291.

Was nonresidential carpet replacement taxable after January 1, 1988? Yes, on the total charge.

Did separately stating labor and material protect a nonresidential replacement job? No.

How was a mixed remodeling and new-construction contract taxed? Entirely taxable unless the new-construction carpet labor was separately stated.

Citations and references

• 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/8711L0847D02

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

November 23, 1987

Dear ****:

As a follow-up to my talk in Abilene, I was asked to write you a letter
about carpet sales and installations.

Sales and Installation of carpet in residences will continue after
January 1988 to be handled under Rule 3.291 (enclosed) just as they are now.
This rule will continue to cover non-residential installations until January 1,
1988.

As of January 1, replacement of carpet in locations other than residences
will be treated as real property remodeling. The total charge will be taxable
whether the charges are separately stated or not.

If you are carpeting a building under a contract for new construction,
providing additional square footage or finishing out a previously unoccupied
space, you will continue to be treated as a contractor under Rule 3.291.

A contract that covers both remodeling and new construction will be
taxable in total unless the labor to carpet the newly constructed area is
separately stated.

After January 1, you may give a resale certificate in lieu of tax when
purchasing carpeting and pad to perform real property remodeling even if the
job is performed for the federal government.

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,
Al Van Allen
Tax Policy Division