Was installing furniture that was not permanently attached to a building a real-property construction contract, and how were mixed contracts classified?

Plain-English summary

The Comptroller said that installing furniture that was not permanently affixed to a building did not improve real property and was not installation in a “construction context.”

The letter found no percentage test for deciding when a mixed contract containing both tangible personal property and real-property improvements should be treated as a construction contract. Citing Hearing 18,511, it said the contract must be considered as a whole. If the real-property work was only incidental, the contract did not qualify as a contract to improve real property.

Common questions

Did installing unattached furniture count as improving real property? No.

Was there a fixed percentage test for mixed contracts? No clear percentage guideline was identified in the letter.

What controlled instead? The contract as a whole; incidental real-property work was not enough.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8903L0925E14

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller March 8, 1989

Dear *****:

This is in response to your letter, dated June 16, 1988, concerning
*****. You had asked for a definition of "construction context".
You also asked what percentage of a "mixed" contract, which includes
both tangible personal property and improvements to real property,
would have to be for the permanent improvements to realty in order to
treat it as a contract to improve real property.

I have included copies of documents which refer to installation of
personal property in a "construction context". In the examples given,
the terms of a contract to improve real property make the contractor
responsible for installing personal property as a part of the con-
struction contract. If ** enters into a contract with a
building owner or tenant to install furniture that is not permanently
affixed to the realty, then * is not improving real property
or installing furniture in a "construction context".

I could not find any guidelines that clearly indicate what percentage
of a "mixed contract" must be for permanent improvements to realty in
order to make the entire contract treated as such. I have enclosed a
copy of a letter that I wrote to you in January 1986. My response to
your Situation 3 outlines our policy. I have also enclosed a copy of
Hearing 18,511 for your review. The administrative law judge ruled
that a contract must be viewed as a whole, and if the improvement to
realty portion is only incidental to the entire contract, then the
contract will not qualify as a contract to improve real property.

This opinion is based upon the facts you presented. If there are
additional or different facts, this opinion may change.

Please feel free to contact me if you have any additional questions.
You may write me, call toll-free 1-800-531-5441 from anywhere in the
United States or phone 512/463-4685.

Sincerely,
Julie Pesl
Tax Correspondence