Ezel / Tax Rulings / TX
TX 8909L0958G11 Sales and/or Use Tax (State,Local,MTA) 1989-09-18

Was partial interior demolition of an existing nonresidential building taxable remodeling, and was later refitting the shell taxable?

Short answer: Yes. Converting a finished existing building into an unfinished shell through interior demolition was taxable nonresidential remodeling, and refitting the shell also was taxable. Only razing a building that would not be reoccupied fell outside real-property remodeling under the letter.

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This page answers the general question as of 1989. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1989
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is an official Texas Comptroller of Public Accounts letter published on the State Tax Automated Research (STAR) system. Letters on STAR can be the basis of a detrimental reliance claim only for the taxpayer to whom the letter was directly issued (see 34 Tex. Admin. Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded. Taxpayer-identifying details are redacted. This summary is informational only and is not legal or tax advice. Consult a licensed Texas tax professional about your specific situation.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page) is the authoritative source for any reliance.

Plain-English summary

Two contracts covered interior demolition of an existing nonresidential building and later work to refinish the resulting shell.

Rule 3.357 taxed nonresidential real-property remodeling. Turning a finished existing building into an unfinished shell through interior demolition was remodeling, even though the work included demolition. The contractor had to charge sales tax on the total amount billed for that contract.

Refitting the remodeled shell building also was taxable real-property remodeling, so the total charge under the second contract was taxable.

The letter distinguished complete demolition or razing of a building that would not be reoccupied, which was not treated as real-property remodeling.

Common questions

Was interior demolition taxable? Yes, when it remodeled an existing building into a shell.

Was refitting the shell taxable? Yes.

Was complete razing always remodeling? No, not when the building would not be reoccupied.

Citations and references

  • 34 Tex. Admin. Code Rule 3.357

Source

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller September 18, 1989

Dear ****:

Thank you for your letter of September 9, 1989, concerning your sales tax
responsibilities under the two contracts that you described.

You are required to charge sales tax on the total amount charged for
performing the services specified under each contract. The sales tax law and
Rule 3.357 imposes tax on services to remodel non-residential property. It is
clear that the scope of the "interior demolition" of an existing building is
remodeling. Generally, some degree of "demolition" occurs when real property
is repaired or remodeled. The finished-out existing building is remodeled into
an unfinished shell building.

The services to refinish the remodeled shell building is also taxable as
real property remodeling.

Demolition (razing) a building that will not be reoccupied is not
considered real property remodeling services.

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, you may call
toll-free
1-800-252-5555, ext. 3-4683. The regular number is 512/ 463-4600. You
may write me at Tax Correspondence, Comptroller of Public Accounts.

Sincerely,
Eddie C. Washington
Tax Correspondence

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