How did Texas classify window air conditioners and portable buildings as tangible personal property or real property for repair-tax purposes?

Plain-English summary

The Comptroller treated air conditioners installed in window openings as tangible personal property, making their repair labor taxable under the historical rule. A unit installed in a building wall could be a permanent real-property improvement when attachment, adaptation, and intent showed permanence.

Repair of a wall-installed unit had been nontaxable before January 1, 1988, but repair or remodeling of a nonresidential real-property improvement became taxable on that date.

A portable building was real property only when it was permanently affixed to a slab, plumbed, and wired for electricity. Otherwise it remained tangible personal property. The taxability of real-property portable-building repair depended on commercial use under the letter.

What this means for you

Placement and permanence controlled the 1988 classification. Equipment or a building did not become realty merely because it was heavy or bolted down; the letter looked for permanent attachment and intended integration.

Common questions

Was a window-opening air conditioner personal property? Yes.

Could a wall-installed unit be real property? Yes, if permanently attached and intended as part of the realty.

When was a portable building real property? When permanently slab-affixed, plumbed, and wired.

Citations and references

The letter did not cite a rule or statute by number.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8802L0862E01

Original ruling text

February 25, 1988

Dear ***:

Thank you for your recent letter regarding the taxability of labor on window
air-conditioning units.

Effective October 2, 1984, labor to repair, restore, remodel or maintain tangible
personal property became taxable. The same labor performed on an improvement to real
property would not be taxable.

Generally, free-standing equipment is tangible personal property. Equipment which is
bolted down, but which could be considered tangible personal property. Equipment which
is of such size or weight that it is not practical to move it will be considered as
realty if the intent of the owner is for the installation to be permanent. Therefore,
the units installed into the window openings are considered to be tangible personal
property and the labor to repair these units would be subject to the sales tax.

To be considered a permanent improvement, there must be permanent attachment to the real
property so that removal of the improvement would cause substantial damage to either the
improvement or the real property. The improvement must be adapted to the apparent use of
the realty and it must be the intent of the provider that the improvement became a permanent
part of the realty. Therefore, a unit installed in the wall of a building is a permanent
improvement to real property and the labor to repair these units would not be subject to
the tax, prior to January 1, 1988. Effective January 1, 1988, the labor to remodel and/or
repair a non-residential improvement to real property became subject to the tax. Remodeling
or repair includes installation of air-conditioning equipment.

Portable buildings are classified as real property only if permanently affixed to a slab,
plumbed, and wired for electricity. The taxability of the repair and remodeling of portable
buildings as real property will be based on commercial use.

Portable buildings not permanently affixed, plumbed, etc. are considered tangible personal
property and repair labor is taxed accordingly.

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

You may write me at the Tax Policy Division.

Sincerely,

Tax Policy Division