Did an elevator company have to calculate the taxable repair portion of each maintenance contract separately?

Plain-English summary

The Comptroller revised an earlier opinion that had required an elevator provider to calculate the repair percentage contract by contract. For simpler recordkeeping, the provider could instead establish one taxable percentage and apply it to all Texas maintenance contracts.

The attached 1988 letter explains the earlier framework. Repair charges of 5% or less did not convert the whole maintenance contract into a repair contract. Above 5%, the full contract was taxable unless the repair portion was separately identified, and a reasonable estimate could be used for an original contract.

Common questions

Was contract-by-contract calculation still required? No.

What replaced it? One taxable percentage applied across all Texas maintenance contracts.

What did the attached earlier guidance say about repairs over 5%? The entire contract was taxable unless the repair charges were separately identified.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8902L0924B07

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller February 21, 1989

Dear **:

On March 3, 1988, I wrote you a letter regarding the taxability of
repairs and scheduled maintenance performed on improvements to
realty. At that time I gave you a formula that you could apply on
a contract by contract basis that would allow you to tax only the
percentage of that contract determined to be for repairs.

I have recently revised my opinion. For simplicity of record
keeping, you may establish a single taxable percentage to apply to
all your Texas maintenance contracts.

Please feel free to call or write if you have questions. You can
reach me by calling 800-531-5441 or FAX (512) 475-0900.

Sincerely,
Al Van Allen
Taxability Section
Legal Services Division

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller March 3, 1988

Dear **:

Thank you for your recent letter regarding the taxability of repairs and
scheduled maintenance performed on improvements to reality.

As we discussed, Rule 3.357 is being revised to state that 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 charges exceeding
5.0% will be taxable in total unless the charges for repairs are
separately
identified to the customer.

If you believe that repairs performed under a maintenance contract may
exceed
5%, you may avoid the problem as follows:

o Compute the percentage of the prior years contract that was
attributable
to repairs.

o Separately identify this percentage (in the current contract) as
charges
for repairs and tax that amount.

o Adjust the contract percentage each year to reflect the prior years
experience.

o On original maintenance contracts, a reasonable estimate may be used.

If this formula is used, the entire maintenance contract would not become
subject to sales tax even if the actual repair percentage exceeded the
projection.

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