When did playground equipment become real property, and how were homeowner-association recreation areas treated?

Plain-English summary

Freestanding playground equipment and units merely anchored or bolted above ground remained tangible personal property, making the total sale-and-installation price taxable. Equipment actually embedded in concrete was treated as an improvement to real property. Length of service alone did not control; the letter focused on whether removal would make the equipment and realty unusable without extensive repair.

A swimming pool, park, or recreation area jointly owned by homeowners-association members and reserved for subdivision residents was residential property for classifying labor to repair or remodel real-property improvements. Repair of tangible personal property remained taxable regardless of residential use.

The letter warned that the agency's internal sales-tax manual was a general guideline, not legal authority. It also said homeowners associations usually did not qualify as exempt organizations under Rule 3.322.

New-construction labor on a real-property improvement was nontaxable. Residential real-property repair and remodeling labor was nontaxable, while the total charge for nonresidential real-property work and tangible-personal-property repair was taxable under the historical rules described.

Common questions

Did bolting equipment to a concrete slab make it real property? No. The slab was realty, but the equipment retained its identity as personal property.

What about equipment embedded in concrete? It was treated as a real-property improvement.

Were qualifying HOA recreation areas residential? Yes, when jointly owned and solely for subdivision residents.

Did the internal audit manual have the force of law? No.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8905L0938D07

Original ruling text

May 11, 1989

Dear *****:

I am revising my May 8, 1989, response to your letter regarding playground
equipment.

You stated in our telephone conversation that the units or kits that are sold
and installed by your company are set in concrete. They are actually embedded
in concrete pillars or footings. As we discussed any units or kits that are
sold free-standing or that require only above ground mounting or installation
(anchoring) are tangible personal property and the total price is taxable.

Question #1: We manufacture playground equipment for heavy use areas in
apartment complexes, Home Owners Associations, schools, etc. which is installed
in large concrete footings at the users site. This equipment is purchased and
set in place with the intention of it being made a permanent part of the
property, many times equipment is still in service 10 to 20 years later if
properly maintained. We wish a determination as to which type of equipment this
is to be considered, tangible or real property, if it is made a part of the
property. It would be difficult to remove most of the equipment without
damaging the equipment or the site if not both, due to its size and nature of
usage and is generally left in place as long as serviceable.

In addition to the play structures, we manufacture park amenities such as
picnic tables, barbecue grills, bicycle racks and park benches. Again if these
are set in concrete footings or permanently bolted and attached to the
property, what type of equipment would you determine it to be, tangible or
real?

Answer #1: The playground equipment and park amenities described above are
tangible personal property (TPP). Few of these items lose their identity as TPP
when set in place on the property. Length of service does not determine whether
the item becomes an improvement to realty. The information contained in the
brochures that only a few items are set in concrete. It appears that the
majority of the kits are anchored, but not set in concrete.

Therefore, the removal of these items would not cause substantial damage to the
units or to the realty from which they are removed. Substantial damage occurs
only when the removal of the TPP causes the real property and the TPP to no
longer be usable without extensive repair. Units that are actually set in
concrete will be considered improvements to realty.

Question #2: Under the sales tax policy/procedures manual, there is a
terminology section describing and setting forth what is to be considered
"residential" for the purpose of taxing labor under the repair of
nonresidential real property. The question is whether a park and recreation
area for a home owners association which is jointly owned by all of the
individual lot owners for the sole use of the residents within the subdivision,
is to be considered residential? These areas are set up for the usage of all
lot owners and each owner pays a maintenance fee. Should this not be considered
a detached section of the homeowners property and the use of each resident as
it appears is the intent of the definition which included multi-family
apartment or housing projects and condominiums?

Answer #2: The reference material you quoted is a manual intended only for
internal use within this agency. It is intended as a general purpose guideline,
not an authority on taxability. However, it has previously been determined that
a swimming pool, park, and recreation area which is jointly owned by the
members of the homeowners association and is specifically intended for the sole
use of the members within the subdivision is considered residential property
for the purposes of determining taxability of the labor to repair or remodel
the improvements to real property in these areas. Repair of TPP is taxable
regardless of residential or non-residential use.

Question #3: What types of organizations or entities qualify to be tax exempt
under the sales tax policies? Are there any subdivision or home owners
associations which might qualify as an exempt organization? If not, can you
provide us with proper statutes or policies which we can give to these types of
groups which question whether they are or not?

Answer #4: Enclosed is Rule 3.322 - Exempt Organizations. Please refer to
Sections (b) and (c) for organizations that may qualify as exempt. Homeowners
associations usually do not qualify as an exempt organization for sales tax
purposes.

In order to have more information, I requested and received brochures regarding
the equipment your company sells from Ms. Foote in our ** Audit
Office.

The following paragraphs offer a general discussion of your tax responsibilities.
The majority of this equipment appears to be sold in units or kits. This is the sale
of tangible personal property and is taxable. The assembly and installation appears
to be the responsibility of the purchasers and few items indicate that they are/should
be anchored in concrete.

When your company is contracted to sell and install the equipment, it is
selling and installing tangible personal property. This equipment does not
become an improvement to realty; therefore, the total charge is taxable.
Charges for installation labor that were separately stated and identified on
the invoice or billing were not taxable before October 1, 1987.

An exception to this exists if the equipment is actually embedded into
concrete. When this occurs the concrete and the embedded equipment is
considered an improvement to real property. The labor to install an item that
becomes an improvement to real property is not taxable when the labor qualifies
as new construction. Upgrading or remodeling labor is taxed according to
whether the improvement is considered residential or non-residential. If the
equipment is merely bolted to a concrete slab, the slab is an improvement to
real property and the equipment retains its identity as TPP. Again the sale and
installation of TPP is taxable.

The labor to repair and remodel residential improvements to real property is
not taxable. The total charge to repair and remodel non-residential
improvements to real property is taxable. The total charge to repair/remodel
tangible personal property is taxable. Please refer to the enclosed rules
relating to contractors, repair of tangible personal property, and
repair/remodeling of improvements to real property for your responsibilities in
each of these activities.

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

You may write me at Tax Correspondence, Comptroller of Public Accounts.

Sincerely,

Tax Policy Division

cc: Dana Foote, ** Audit