When did repair work make a real-property maintenance contract taxable, and what records and historical prior-contract rules applied?

Plain-English summary

Real-property maintenance contracts were not taxable under the 1988 guidance regardless of contract date. Repairs did not change that result when the repair charges were 5% or less of the total contract.

If repair charges exceeded 5%, the entire contract became taxable unless the provider separately identified the repairs to the customer. The provider also had to keep adequate records proving maintenance treatment; without records, the contracts were taxed in full.

For contracts that were actually repair contracts, the historical prior-contract exemption applied only if the agreement was entered into or renewed on or before July 21, 1987. A later renewal, renegotiation, or price adjustment created a new taxable contract, and the exemption expired for all contracts on December 31, 1989.

What this means for you

Under the letter, both the repair percentage and documentation mattered. A contract labeled maintenance could still become fully taxable if repairs exceeded the threshold and were not separately stated or if records were inadequate.

Common questions

Did repairs at 5% or less tax the maintenance contract? No.

What if repairs exceeded 5%? The full contract was taxable unless the repair charge was separately identified.

What if the provider lacked records? The contract was taxed in full.

Citations and references

The letter did not identify the real-property maintenance rule 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/8803L0882C01

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller March 25, 1988

Dear **:

Thank you for your recent letter regarding additional information about
maintenance contracts on real property.

Real property maintenance contracts are not taxable regardless of the
date of the contract. Repairs performed under a maintenance contract will not
change a maintenance contract into a repair contract as long as the charges
attributable to repairs are 5.0% or less of the overall charge. Maintenance
contracts with repair charges exceeding 5.0% will be taxable in total unless
the charges for repairs are separately identified to the customer.

The contract you submitted could qualify as a maintenance contract.
However, if the repairs indicated in the extent of coverage portion of the
contract exceed 5.0% of the overall contract charges you must separately state
the repair or tax the total. Your company must maintain adequate records to
prove the contract is a maintenance contract in case of an audit. If records
are not maintained the contracts would be taxed in total.

If your company has contracts that are considered repair contracts, the
prior contract exemption will apply if entered into or renewed on or before
July 21, 1987.Any contract renewals or renegotiations (including price
adjustments) after that date constitute new contracts and will become taxable.
The prior contract exemption expires December 31, 1989 on all contracts.

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,
Julie Pesl
Tax Policy Division