How did Texas tax installed erosion-control systems, nonresidential repair, related real-property services, and products sold for customer installation?

Plain-English summary

Permanently installed flexible concrete revetment, grout-mat, and river-training systems were improvements to real property. New-construction and residential-improvement jobs followed contractor rules: lump-sum contractors paid tax on inputs, while separated contractors taxed the stated materials charge and did not tax labor.

For repair or remodeling of nonresidential real property, the total charge was taxable. Separate real-property services such as planting for erosion control and hauling construction debris were also taxable under the letter.

Products sold directly to customers for their own installation were taxable on the total sales price unless another exemption applied.

Common questions

Were permanently installed systems real-property improvements? Yes.

How was nonresidential repair taxed? The total charge was taxable.

Were products sold for customer installation taxable? Yes, absent another exemption.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8811L0917E10

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller November 2, 1988

Dear **:

Thank you for your letter regarding the taxability of sales for*
After reviewing the brochures submitted it appears that the "Flexible
Concrete Revetment System", "* Flexible Grout Mat System", and
"*
* River Training System" would be considered an improvement to
real
property when permanently installed by your company.

The tax responsibilities of a contractor who builds new structures,
completes
any part of an uncompleted new structure, or builds or makes an
improvement
to residential property and who incorporates tangible personal property
belonging to him into the property is explained in Rule 3.291. A
contractor
can operate under one of two methods, either as a lump-sum contractor or
as a
separated contractor.

Lump-sum contractors are consumers of all materials, supplies and
equipment
used or incorporated into a customer's property. As a consumer, a
contractor
must pay tax to suppliers at the time the materials are purchased. A
contractor will not collect tax from a customer on a lump-sum charge or
on
any portion of the charge.

Separated contractors are considered retailers of all materials
physically
incorporated into the realty being improved. As a retailer, a
contractor
must collect tax from the customer based upon the agreed contract price
of
the materials. The separately stated labor charges for improving the
real
property are not taxable.

As of January 1, 1988, labor to repair, remodel or restore nonresidential
real property became subject to tax.The total charge for the repair or
remodeling of nonresidential realty is taxable.This figure includes all
costs passed-on to the customer in both separated and lump-sum contracts.
The tax responsibilities of real property repairmen are explained in
detail
in Rule 3.357.

As of October 1, 1987, real property services became subject to tax.
Taxable
real property services which may apply to your business include tree
planting, transplanting or planting plants, planting ground cover for
soil
erosion, the gathering and hauling away of construction debris, etc.
The
tax responsibilities of persons performing real property services are
explained in Rule 3.356.

Sales of your products such as *-Rap Bags, * Grout and

Panels are taxable in total when sold direct to the customer for their
own
installation, unless some other exemption applies.

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 1-800-252-5555. The regular number is 512/463-4600. You may write
me
at Tax Correspondence, Comptroller of Public Accounts.

Sincerely,
Julie Pesl
Tax Correspondence