Are freight and installation charges taxable in Texas when equipment is sold delivered and given its final assembly at the customer's location?

Plain-English summary

This is an internal letter to a Comptroller field auditor (the Fort Worth Audit Office) about a taxpayer under audit for December 1, 1983 through November 30, 1987. The auditor asked how to treat the taxpayer's "installation labor." The equipment is sold delivered and installed, with freight and installation listed as a separate line item on which no sales tax was charged, and because of the type of equipment, final assembly occurs at the customer's location.

The auditor posed two questions, and the Comptroller gave the same answer to both:

1. Is the "installation labor" really fabrication/assembly labor, taxable for the entire period? — The charges for freight and installation are taxable.
2. If not fabrication labor, does the fact that installation labor was combined with freight (billed before title or possession transferred) make the entire charge taxable for periods after freight became taxable? — The charges for freight and installation are taxable.

In short: because the equipment's final assembly happens at the customer's site, the separately billed freight-and-installation charge is part of the taxable transaction, not exempt separately stated installation.

What this means for you

Sellers who deliver and assemble equipment

If your product isn't complete until you assemble or set it up at the customer's location, treating that step as tax-free "installation labor" is risky. Here the Comptroller taxed the combined freight and installation charge — the final on-site assembly was effectively the last stage of producing a finished, usable item.

Watch how freight is bundled

Combining installation with freight billed before title or possession passes to the buyer can pull the whole charge into the tax base once freight itself is taxable. Separately stating a charge does not automatically make it exempt if the underlying labor is taxable.

Common questions

Q: Is on-site final assembly of equipment taxable labor in Texas?
A: In this letter, yes. Because final assembly occurred at the customer's location, the Comptroller held the freight-and-installation charges taxable.

Q: Does separately stating installation from freight make it nontaxable?
A: Not here. The Comptroller answered that the freight-and-installation charges are taxable regardless of how the two questions were framed.

Q: Who received this letter?
A: A Comptroller field auditor in the Fort Worth Audit Office asked the question about a taxpayer being audited for 1983–1987; the taxpayer's identity is redacted.

Q: Can I rely on this 1988 letter today?
A: Treat it as guidance only. It is based on the facts presented and can change with different facts; on the STAR system it binds the Comptroller only as to the taxpayer it was issued to and may no longer reflect current policy.

Citations and references

Rules and statutes: The letter answers by reference to the facts (equipment whose final assembly occurs at the customer's location, with freight and installation billed as one separately stated line) and to the point at which freight became taxable, but does not cite a specific Tax Code section or Comptroller 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/8808L0898A01

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller August 11, 1988

Auditor
Fort Worth Audit Office
3020 Wichita Court
Fort Worth, TX 76140

Re: ***
Taxpayer Number: *****
Audit Period: December 1, 1983 through November 30, 1987

Dear ***:

Thank you for your recent letter regarding the taxability of
installation/fabrication labor.

1. Would the "installation labor" as described in Exhibits I and II be
   considered fabrication and/or assembly labor and taxed as such for the
   entire period?

The equipment in question is sold on the basis of being delivered and
installed with freight and installation costs listed as a separate line
item on which no sales tax is charged. Due to the type of equipment
involved, final assembly occurs at the customer's location. The charges
for freight and installation described in Exhibits I and II are taxable.

2. If not taxable as fabrication labor, would the fact that the instal-
   lation labor was combined with the freight charges (occurring before
   title or possession transferred) make the entire charge taxable (for
   periods after freight became taxable)?

The charges for freight and installation described in Exhibits I and II
are taxable.

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 Tax Correspondence, Comptroller of Public Accounts.

Sincerely
Tom Soto
Tax Correspondence

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller

Fort Worth Audit Office
3020 Wichita Court
Fort Worth, Texas 76140

Wayne McDonald, Tax Policy
P.O. Box 13528
Austin, TX. 78711

RE: ***
Taxpayer Number: *****
Audit Period: December 1, 1983 through November 30, 1987

Dear Wayne:

Enclosed please find the documents we discussed in our conversation on
June 6, 1988. I have enclosed the catalog along with some invoices,
sales contracts, installation agreements, and letter agreements. These
items represent the various types--of documentation consistently uti-
lized in the taxpayer's business.

1) Would the "installation labor" as described in Exhibits I and
II be considered fabrication and/or assembly labor and taxed as such
for the entire period?

2) If not taxable as fabrication labor, would the fact that the
installation labor was combined with the freight charges (occurring
before title or possession transferred) make the entire charge taxable
(for periods after freight became taxable)?

Thanks for your cooperation in this matter. If you have any questions,
please call me at (***.

Sincerely,

Auditor