Was labor to add a second floor inside an existing warehouse nontaxable new construction even though the roof was not raised?

Plain-English summary

The November 22 letter reversed the attached October 30, 1989 answer.

Constructing a second floor inside the existing warehouse—even without raising the roof—was new construction. Labor attributable to that new second-floor area was nontaxable.

The rest of the work converting or modifying the warehouse into a manufacturing facility remained taxable remodeling. Only the contract portion tied to the added floor received the new-construction treatment.

Common questions

Did the roof have to be raised? No.

Was second-floor labor taxable? No, for the new-construction portion.

Was all warehouse conversion work exempt? No.

Which letter controls? The November 22 correction.

Citations and references

• 34 Tex. Admin. Code Rule 3.357(a)(4), (b)(7), and (c)(3)
• 34 Tex. Admin. Code Rule 3.291(b)(2)(A) and (3)(A)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8911L0976G02

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TEXAS 78774

November 22, 1989

Dear. ***:

Thank you for your letter concerning my October 30, 1989 letter
regarding taxability of the labor to construct a second floor in an existing
warehouse without raising the roof.

A situation as you described was discussed in a recent meeting
regarding the preparations of a contractor's brochure. The decision in that
meeting was that the construction of a second floor in an existing structure
(without raising the roof to add a second story above an existing structure) is
considered new construction.

Only the portion of the contract relating to the addition of the
second floor would be considered new construction with the labor being
nontaxable. The portion of the contract relating to the remodeling or
modification of the warehouse to a manufacturing facility would be totally
taxable.

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

Sincerely,
Jo Ann Dieck

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

October 30, 1989

Dear***:

Thank you for your letter requesting confirmation of the
application of Texas
Sales/Use Tax rules to relating to the labor portion of the
following described
contract:

The taxpayer currently owns and is utilizing a structure as a
warehouse
facility. The taxpayer is planning to convert the warehouse to an
actual
manufacturing facility. In order to accomplish this result, the
specifications
call for the construction of a second floor where none existed
previously.
That is, the taxpayer plans an addition of approximately 41,000 in
new square
footage (without raising the roof) to the existing structure.
Under Rule 3.357
(a)(4) and (c)(3), the labor portion of the contract related to the
addition of
this new square footage should be considered "new construction".
This being
the case, it is correct to state that this labor would be exempt
from Texas
Sales/Use Tax under Rule 3.291(b)(2)(A) and (3)(A) as well as Rule
3.357
(b)(7)?

The work is remodeling or modification of an existing structure and
the total
charge not the customer is taxable. The modification results in
additional
usable space within the existing structure but additional square
footage is not
added outside the existing structure.

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,
Jo Ann Dieck
Tax Correspondence