How did Texas's April 1988 cable-television bulletin tax new plant, extensions, residential drops, nonresidential repairs, and periodic maintenance?

Plain-English summary

The attached Texas Tax Bulletin treated cable plant and cable drops as real property. Cable plant included electrical equipment and distribution cables buried underground or attached to poles; a cable drop ran from the pole or underground pedestal to the customer's building.

Labor was not taxable for a new cable plant, an extension of existing plant, a drop to a newly constructed building before initial occupancy, or adding or repairing a drop to a residence. Materials remained taxable, with the payment method depending on whether the construction contract was lump-sum or separated.

The total charge for repairing or upgrading cable plant, or adding, repairing, or upgrading a drop to an existing nonresidential building, was taxable. Scheduled preventive maintenance was not taxable: the bulletin used periodic fuse replacement before failure and signal-leak testing as examples. If testing found leaks and the company repaired them, the repair charge was taxable.

What this means for you

The 1988 bulletin drew lines among new construction, residential work, nonresidential repair or remodeling, and preventive maintenance. It also said hotels were not residential property, while apartment complexes, nursing homes, condominiums, and retirement homes were.

For nontaxable-labor jobs, a lump-sum contractor paid tax when buying materials and did not tax the lump-sum customer charge. Under a separated contract, the contractor collected tax on the stated materials charge.

Common questions

Was labor to build or extend cable plant taxable? No.

Was repair or upgrading of existing nonresidential cable plant taxable? Yes, on the total charge.

Was scheduled preventive maintenance taxable? No.

Was repair discovered during signal-leak testing taxable? Yes.

Did the bulletin decide STAR's captioned total-replacement method? No. That specific scenario does not appear in the attached text.

Citations and references

• 34 Tex. Admin. Code Rule 3.291, cited for construction-contract treatment.
• 34 Tex. Admin. Code Rule 3.357, cited for real-property repair and remodeling.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8804L0899D03

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller April 26, 1988

Dear **:

I appreciate your assistance in preparing the tax bulletin on real
property repair and remodeling for cable television companies. I think it
should clear up any confusion among your members and Comptroller personnel.

I am attaching a copy for you to distribute to your members. I will send
the same information to our personnel.

Please feel free to contact me if you have additional questions. You may
write me, call toll free 1-800-531-5441 from anywhere in Texas or phone
512/463-4600.

Sincerely,
Mona Ezell Shoemate
Tax Policy Division

Cable Television Companies and
the Sales Tax on Real Property Repair and Remodeling Labor

Texas Tax Bulletin
Bob Bullock, Comptroller of Public Accounts
April 1988

The labor, to repair or remodel nonresidential real property is taxable
as of
January 1, 1988. What does that mean for cable television companies?

What is "real property?"

Real property is the land and any structures or other improvements
permanently attached to the land. This includes cable plant and cable drops.
A cable plant is made up of the electrical equipment and distribution cables
buried underground or attached to either utility poles or poles owned by the
cable company. A cable drop is the cable that goes from the pole or the
underground pedestal to the customer's building.

What is residential property?

Residential property means family dwellings, including apartment
complexes, nursing homes, condominiums, or retirement homes. It does not
include hotels.

Examples of jobs where the labor is not taxable

Sales tax is not due on the labor charge when the job involves:

-- building, repairing, or remodeling residential property
-- building new structures
-- completing unfinished new structures
-- finish out work prior to initial occupancy
-- restoring real property lost or damaged by a fire, flood,
explosion, or natural disaster if a claim could have been filed if the property
was insured

For example, the charge for labor to build a new cable plant or to extend
an existing cable plant is not taxable. The labor to run a cable drop to a
newly constructed building (either commercial or residential) before it is
initially occupied is mot taxable. The labor to add or repair a cable drop to
or in a residence is not taxable.

What about the charger for materials on these jobs?

Sales tax is due on the materials charges. In the types of jobs listed
above, the type of contract--separated or lump sum--determines who pays the
tax:

Lump-sum contract--A lump-sum contract does not separate the charges for
materials from the labor charges. No tax is due on the contractor's lump-sum
charge to the cable company. The contractor must pay tax on all materials when
he buys them.

Separated contract--Under a separated contract, the materials charge is
separately stated from the labor charge. The contractor collects tax from the
cable company on the materials charge.

Note: Cable companies that charge the cable subscribers separate amounts
for materials and labor should contact the Comptroller's Office for additional
information. Remember that sales tax is due on sales of equipment, such as
converters, transformers, and drop cable, to the cable subscriber where no
labor charge is involved.

When is repair or remodeling labor taxable?

When the following type of work is done on nonresidential real property,
the total charge (labor and materials) is taxable:

-- rebuilding an existing improvement to realty
-- replacing or upgrading any part of an existing structure
-- repairing damaged, broken, or defective parts of a structure
-- restoring real property that still works but that has declined
or deteriorated

For example, the total charge to repair or upgrade a cable plant is
taxable. The charge to add, repair, or upgrade a cable drop to or in an
existing nonresidential building is taxable.

Maintenance of real property

The labor to maintain real property is not taxable. Maintenance is
scheduled periodic work on real property that is not broken or deteriorated.
The maintenance is necessary to keep the property in good working order by
preventing its failure or deterioration.

For example, a cable company may hire a contractor to replace the fuses
in its amplifiers every three months. The fuses have not gone out; the fuses
are replaced while they still work to prevent a system failure. This
contractor's labor charge is not taxable.

Or a cable company may pay a service company to test its system for
signal leaks. The charge for testing the system is not taxable. If the service
company discovers leaks and repairs them, the charge for repairs is taxable.

Exempt organizations

Government agencies and certain religious, charitable, and educational
organizations are exempt from paying sales tax on purchases of items related to
their exempt function. Cable companies that make sales to these exempt
organizations should contact the Comptroller's Office for more information.

Need more information?

For more detailed information on real property repair and remodeling,
request a copy of Rule 3.357 and Rule 3.291 and the Tax Bulletin on real
property repair and remodeling, or call the Tax Assistance toll free from
anywhere in Texas at 1-800-252-5555. The regular number is 512/463-4600.