Was a lump-sum pit-scale installation incorporated into an existing dirt road fully taxable after Texas's January 1, 1988 real-property change?

Plain-English summary

A company bought construction of a permanent pit scale at the site of an existing dirt road. The proposal, purchase order, and invoice used one lump-sum price for labor and materials, although the invoice added a separate tax charge.

Before January 1, 1988, the project would have been a lump-sum real-property improvement under Rule 3.291: the contractor would pay tax on materials and not tax the customer's lump-sum price.

For work on or after January 1, 1988, the Comptroller instead found the charge fully taxable under Rule 3.357 because the scale was incorporated into—not placed beside—an existing road. The letter applied a historical 7% rate because the agreement preceded Lubbock County's new half-percent sales tax.

What this means for you

The 1988 transition date and integration into an existing improvement changed the result. The quoted 7% rate is purely historical.

Common questions

Was the post-January 1 work fully taxable? Yes.

Why? The pit scale was incorporated into an existing road.

Is the 7% rate current? No. It was the historical rate applied to this pre-county-tax agreement.

Citations and references

• 34 Tex. Admin. Code Rule 3.291, discussed for pre-1988 lump-sum original improvement treatment.
• Rule 3.357, applied to work on the existing road after January 1, 1988.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8803L0864G01

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

March 8, 1988

Dear ***:

Thank you for your recent letter with purchase order and billing on
construction of a pit scale for your company. In our phone conversation
of
March 4, 1988, you gave me the following information:

• The pit scale is a permanent improvement to real property, the
  site for which was a previously constructed dirt road.

• There was no formal contract to build the scale.

• CORP ABC, issued a proposal to build the scale (not included with your
  letter) and you responded with a purchase order.

• You said that neither document gave a separation of material and
  labor but quoted a lump sum figure for the total job.

• CORP ABC, has sent you a bill for a lump sum charge for labor and
  materials as proposed and a separately stated charge for tax.

You ask if sales tax is due on the lump sum price.

Prior to January 1, 1988, this project would qualify as a lump sum
contract
for improvement to realty under Rule 3.291 (enclosed). The contractor,
CORP ABC, would be considered to be the consumer of all materials and
would not charge tax on any portion of the lump sum price.

Effective January 1, 1988, labor to repair or remodel improvements to
realty
became taxable. Because this scale is being incorporated into (not
beside)
an existing road, the charges for work done on and after January 1, 1988
are
fully taxable. Please see Rule 3.357 (enclosed).

Lubbock County now has its own 1/2 percent sales tax. However, because
this
agreement was entered into prior to January 1, 1988, the inception of the
County sales tax, the tax rate for this job will be seven percent (7%).

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 our
toll-free
number 1-800-531-5441. The regular number is 512/463-4600. You may
write me
at the Tax Policy Division.

Sincerely,
Al Van Allen
Tax Policy Division