How were stand-alone backflow testing, testing with repairs, installation, design, drafting, and inspection taxed across new, residential, and existing commercial property?
Apply this to your situation
This page answers the general question as of 1989. Ezel answers yours, under current Texas tax law, with citations.
Plain-English summary
The ruling grouped 26 detailed backflow-preventer and irrigation-system scenarios into several rules.
- Distinct, stand-alone testing was not taxable.
- Testing and repair labor on new commercial construction or residential property was not taxed to the customer under the stated contractor rules. When parts were included, lump-sum contractors paid tax on materials; separated contractors collected tax on materials.
- Repairs to existing nonresidential property were taxable in full except for a separately stated testing charge. Resale certificates could apply when a contractor bought the repair service for resale.
- Whether work at a mixed new/existing commercial site was new construction or remodeling depended on whether the water system was part of the building or separate from it.
- Professional plumbing-system design, calculations, drawings, and specifications appeared nontaxable, but stand-alone drafting, draftsman delineations, and blueprints were taxable.
- Stand-alone code or contract-compliance inspection was nontaxable; inspection associated with taxable remodeling was taxable unless separately stated.
Common questions
Was stand-alone testing taxable? No.
Were existing-commercial repairs taxable? Yes, apart from separately stated testing.
Was professional design taxable? The letter treated it as nontaxable, while stand-alone drafting was taxable.
Was inspection taxable? Not by itself; association with taxable repair or remodeling changed the result unless separately stated.
Citations and references
- 34 Tex. Admin. Code Rule 3.291
- 34 Tex. Admin. Code Rule 3.357
Source
- STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
- Opinion: https://star.comptroller.texas.gov/view/8911L0977B01
Original ruling text
November 16, 1989
Dear ***:
Thank you for your letter regarding the taxability of different
situations in your business. You stated that you are in the
business of testing, repairing and selling backflow prevention
devices on new and old commercial and residential structures. You
also do some design, repair, and installation of law irrigation
systems.
You described a backflow preventer device as a testable water
valve that is specifically designed to keep water flowing in one
direction. This valve protects the city drinking water system
from contamination. The valve is required to be tested upon
installation and is recommended to be tested annually. The valve
is usually located on building drinking water systems, building
automatic sprinkler/fire protection systems and law irrigation
systems.
You are considered to be a contractor subject to the provisions of
Rule 3.291 Contractors when you perform new construction or repair
or remodel residential real property. When you repair or remodel
existing nonresidential real property, your tax responsibilities
are covered by Rule 3.357 Real Property Repair and Remodeling.
Copies of these rules are enclosed for your information.
When you perform a service that does not involve the repair of
real property and the service is distinct and identifiable such as
the testing services in situations 1a, 2a, 4a, 5a, 6a, 9, 10a,
12a, 13a, and 14a, the charge to your customer is not taxable.
When you provide testing and repair labor services on a new
construction commercial project or on any residential property
such as in situations 1b, 9b, 10b, 12b, 13b, and 14b, the charges
to your customer are not taxable.
When you provide testing, installation or repair labor, and
materials on new commercial construction project or on any
residential property such as in situations 1c, 3a, 9c, 10c, 11a,
12c, 13c, 14c, 15a, 16a, 17a, 18a, 21a, 22a, 23a, and 24a, you are
considered a contractor. If the contract with your customer is
for a lump-sum charge, you owe tax on the purchase of the
materials. The charge to your customer is not taxable. If the
contract with your customer separates the charges for materials
and labor, you will collect tax from your customer on the charge
for materials. You may accept a properly completed and valid
resale certificate for the tax on materials from a subcontractor
or prime contractor who has a separated contract with his
customer. The subcontractor or prime contractor would then be
responsible for collecting the tax due.
When you perform repairs on existing commercial property such as
in situations 5b, 5c, 6b, 6c, 8a, 19a, and 20a, you are a
repairman under Rule 3.357(b)(2). The total charge, except
separately stated charges for testing, are taxable. You may
accept a properly completed and valid resale certificate from a
subcontractor or prime contractor for the tax if the repair
service is purchased for resale to the contractor's customer.
In situations 2b and 2c, the work is performed on existing water
systems at new commercial construction sites. In situations 4b,
4c, and 7a, the work is performed on new water systems at existing
commercial sites. If the backflow preventers are located in or
will be installed in the building, situations 2b and 2c will be
new construction; situations 4b, 4c, and 7a would be
repair/remodeling nonresidential property. If the backflow
preventers are installed in a water system separate from the
building, situations 2b and 2c would be repair/remodeling;
situations 4b, 4c, and 7a would be new construction.
In situation 25a, you are contracted by an architect or the
property owner to design various plumbing systems. You provide
design calculations, construction drawings, and construction
specifications for bidding by construction contractors. It
appears that you are providing a non-taxable professional service.
All taxable items used in providing the service are taxable to you
at purchase. However, performing drafting services from
specifications brought to you by the customer would be taxable.
Tax is due on draftsman delineations and blueprints. You can
purchase only those items transferred to the customer tax free
under a resale certificate.
In situation 26a, you are contracted by an architect/engineer,
property owner or municipality to provide inspection services on
lawn irrigation, plumbing or fire protection systems. The service
provided is an inspection of installed systems for the conformance
of code requirements or contract documents. The inspection
service, by itself, is not taxable. However, if the inspection is
in association with a taxable repair/remodeling job, the
inspection would be taxable unless the charge is separately
stated.
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 additional information, you may
call me toll free at 1-800-252-5555, extension 3-4666 or the
regular number 512/463-4666. You may write me at Tax
Correspondence, Comptroller of Public Accounts.
Sincerely,
Jo Ann Dieck
Tax Correspondence
September 15, 1989
The State of Texas
Sales Tax Division
Controller of Public Accounts
111 West 6th Street
Austin, Texas 78701
Dear Sir:
TAXPAYER (***) has begun doing business in the State of Texas.
The services TAXPAYER offers is quite unique in the fact that the main
service we provide are services required to satisfy a newly adopted state
law.
We have previously contacted Ms. Teresa Bostick, Ms. Suzane Brown, Ms. Elida
Garcia (all of the ** Audit Office) and Mr. Dale Henderson (of
the ** Audit Office) to obtain sales tax information relating
to our Services understanding that TAXPAYER should write down each of the
possible scenarios to ensure an accurate response is obtained from your
office in writing.
A ruling is requested as to which of the various activities TAXPAYER is
engaged in are subject to state sales tax. Please provide such rulings for
each of the enclosed situations listed.
If you have any questions or need more information, please contact me at
***.
Sincerely,
President
To help you in developing your response, please consider the following
information identifying what a backflow preventer device is.
DESCRIPTION:
A backflow preventer device is a testable water valve that is
specifically designed to keep water flowing in one direction. This valve
protects the city drinking water system from contamination. The valve is
required to be tested upon installation and is recommended to be tested
annually.
The valve is usually located on building drinking water systems, building
automatic sprinkler/fire protection systems and lawn irrigation systems.
COMMERCIAL-NEW CONSTRUCTION-BACKFLOW PREVENTER VALVES
Situation 1a:
TAXPAYER is called out to a new construction commercial site where a new
backflow preventer valve has been installed on a new water system by a
construction sub-contractor. A function test is performed on the valve
by TAXPAYER A charge for the testing is levied by TAXPAYER to the
sub-contractor.
Situation 1b:
TAXPAYER is called out to a new construction site where a new backflow
preventer valve has been installed on a new water system by a
construction sub-contractor. A function test is performed on the valve
by TAXPAYER The function test failed and repairs to the valve are made
by TAXPAYER A charge for the testing and the repair is levied by TAXPAYER
to the sub-contractor. No new parts are used.
Situation 1c:
TAXPAYER is called out to a new construction commercial site where a new
backflow preventer valve has been installed on a new water system by a
construction sub-contractor. A function test is performed on the valve
by TAXPAYER The function test failed and repairs to the valve are made
by TAXPAYER A charge for the testing, the new parts used and the repair
is levied by TAXPAYER to the sub-contractor.
Situation 2a:
TAXPAYER is called out to a new construction commercial site where a new
backflow preventer valve has been installed on an existing water system.
A function test is performed on the valve by TAXPAYER A charge for the
testing is levied by TAXPAYER to the building Owner.
Situation 2b:
TAXPAYER is called out to a new construction commercial site where a new
backflow preventer valve has been installed on an existing water system.
A function test is performed on the valve by TAXPAYER The function test
failed and repairs to the valve are made by TAXPAYER A charge for the
testing and the repair is levied by TAXPAYER to the building Owner. No
new parts are used.
Situation 2c:
TAXPAYER is called out to a new construction commercial site where a new
backflow preventer valve has been installed on an existing water system.
A function test is performed on the valve by TAXPAYER The function test
failed and repairs to the valve are made by TAXPAYER A charge for the
testing, the new parts used and the repair is levied by TAXPAYER to the
building Owner
Situation 3a:
TAXPAYER is called out to a new construction commercial site where TAXPAYER
installs a new backflow preventer valve on a new water system. A
function test is performed on the valve by TAXPAYER A charge for the
installation and testing of the valve is levied by TAXPAYER to the
property Owner.
Situation 4a:
TAXPAYER is called out to an existing commercial site where a new
backflow preventer valve has been installed on a new water system by a
construction sub-contractor. A function test is performed on the valve
by TAXPAYER A charge for the testing is levied by TAXPAYER to the
sub-contractor.
Situation 4b:
TAXPAYER is called out to an existing commercial site where a new
backflow preventer valve has been installed on a new water system by a
construction sub-contractor. A function test is performed on the valve
by TAXPAYER The function test failed and repairs to the valve are made
by TAXPAYER A charge for the testing and the repair is levied by TAXPAYER
to the sub-contractor. No new parts are used.
Situation 4c:
TAXPAYER is called out to an existing commercial site where a new
backflow preventer valve has been installed on a new water system by a
construction sub-contractor. A function test is performed on the valve
by TAXPAYER The function test failed and repairs to the valve are made
by TAXPAYER. A charge for the testing, the new parts used and the repair
is levied by TAXPAYER to the sub-contractor.
Situation 5a:
TAXPAYER is called out to an existing commercial site where a new
backflow preventer valve has been installed on an existing water system.
A function test is performed on the valve by TAXPAYER A charge for the
testing is levied by TAXPAYER to the building Owner.
Situation 5b:
TAXPAYER is called out to an existing commercial site where a new
backflow preventer valve has been installed on an existing water system.
A function test is performed on the valve by TAXPAYER. The function test
failed and repairs to the valve are made by TAXPAYER A charge for the
testing and the repair is levied by TAXPAYER to the building Owner. No
new parts are used.
Situation 5c:
TAXPAYER is called out to an existing commercial site where a new
backflow preventer valve has been installed on an existing water system.
A function test is performed on the valve by TAXPAYER The function test
failed and repairs to the valve re made by TAXPAYER A charge for the
testing, the new parts used and the repair is levied by TAXPAYER to the
building Owner.
COMMERCIAL - EXISTING CONSTRUCTION - BACKFLOW PREVENTER VALVES
Situation 6a:
TAXPAYER is called out to an existing commercial site where a new
backflow preventer valve has been installed on an existing water system
by a construction sub-contractor. A function test is performed on the
valve by TAXPAYER A charge for the testing is levied by TAXPAYER to the
sub-contractor.
Situation 6b:
TAXPAYER is called out to an existing commercial site where a new
backflow preventer valve has been installed on an existing water system
by a construction sub-contractor. A function test is performed on the
valve by TAXPAYER The function test failed and repairs to the valve are
made by TAXPAYER A charge for the testing and the repair is levied by
TAXPAYER to the sub-contractor. No new parts are used.
Situation 6c:
TAXPAYER is called out to an existing commercial site where a new
backflow preventer valve has been installed on an existing water system
by a construction sub-contractor. A function test is performed on the
valve by TAXPAYER The function test failed and repairs to the valve are
made by TAXPAYER A charge for the testing, the new parts used and the
repair is levied by TAXPAYER to the sub-contractor.
Situation 7a:
TAXPAYER is called out to an existing commercial site where TAXPAYER
installs a new backflow preventer valve on a new water system. A function
test is performed on the valve by TAXPAYER A charge for the installation
and testing of the valve is levied by TAXPAYER to the property Owner.
Situation 8a:
TAXPAYER is called out to an existing commercial site where TAXPAYER
installs a new backflow preventer valve on an existing water system. A
function test is performed on the valve by TAXPAYER A charge for the
installation and testing of the valve is levied by TAXPAYER to the
property Owner.
RESIDENTIAL - NEW CONSTRUCTION - BACKFLOW PREVENTER VALVES Situation 9a:
TAXPAYER is called out to a new construction residential site where a
new backflow preventer valve has been installed on a new water system by
a construction sub-contractor. A function test is performed on the valve
by TAXPAYER A charge for the testing is levied by TAXPAYER to the
sub-contractor.
Situation 9b:
TAXPAYER is called out to a new construction residential site where a
new backflow preventer valve has been installed on a new water system by
a construction sub-contractor. A function test is performed on the valve
by TAXPAYER The function test failed and repairs to the valve are made
by TAXPAYER A charge for the testing and the repair is levied by TAXPAYER
to the sub-contractor. No new parts are used.
Situation 9c:
TAXPAYER is called out to a new construction residential site where a
new backflow preventer valve has been installed on a new water system by
a construction sub-contractor. A function test is performed on the valve
by TAXPAYER The function test failed and repairs to the valve are made
by TAXPAYER A charge for the testing, the new parts used and the repair
is levied by TAXPAYER to the sub-contractor.
Situation 10a:
TAXPAYER is called out to a new construction residential site where a
new backflow preventer valve has been installed on an existing water
system. A function test is performed on the valve by TAXPAYER A charge
for the testing is levied by TAXPAYER to the Owner.
Situation 10b:
TAXPAYER is called out to a new construction residential site where a
new backflow preventer valve has been installed on an existing water
system. A function test is performed on the valve by TAXPAYER The
function test failed and repairs to the valve are made by TAXPAYER A
charge for the testing and the repair is levied by TAXPAYER to the
Owner. No new parts are used.
Situation 10c:
TAXPAYER is called out to a new construction residential site where a
new backflow preventer valve has been installed on an existing water
system. A function test is performed on the valve by TAXPAYER The
function test failed and repairs to the valve are made by TAXPAYER A
charge for the testing, the new parts used and the repair is levied by
TAXPAYER to the Owner.
Situation 11a:
TAXPAYER is called out to a new construction residential site where TAXPAYER
installs a new backflow preventer valve on a new water system. A
function test is performed on the valve by TAXPAYER A charge for the
installation and testing of the valve is levied by TAXPAYER to the
Owner.
RESIDENTIAL - EXISTING CONSTRUCTION - BACKFLOW PREVENTER VALVES
Situation 12a:
TAXPAYER is called out to an existing residential site where a new
backflow preventer valve has been installed on a new water system by a
construction sub-contractor. A function test is performed on the valve
by TAXPAYER A charge for the testing is levied by TAXPAYER to the
sub-contractor.
Situation 12b:
TAXPAYER is called out to an existing residential site where a new
backflow preventer valve has been installed on a new water system by a
construction sub-contractor. A function test is performed on the valve
by TAXPAYER The function test failed and repairs to the valve are made
by TAXPAYER A charge for the testing and the repair is levied by TAXPAYER
to the sub-contractor. No new parts are used.
Situation 12c:
TAXPAYER is called out to an existing residential site where a new
backflow preventer valve has been installed on a new water system by a
construction sub-contractor. A function test is performed on the valve
by TAXPAYER The function test failed and repairs to the valve are made
by TAXPAYER A charge for the testing, the new parts used and the repair
is levied by TAXPAYER to the sub-contractor.
Situation 13a:
TAXPAYER is called out to an existing residential site where a new
backflow preventer valve has been installed on an existing water system.
A function test is performed on the valve by TAXPAYER A charge for the
testing is levied by TAXPAYER to the Owner.
Situation 13b:
TAXPAYER is called out to an existing residential site where a new
backflow preventer valve has been installed on an existing water system.
A function test is performed on a valve by TAXPAYER The function test
failed and repairs to the valve are made by TAXPAYER A charge for the
testing and the repair is levied by TAXPAYER to the Owner. No new parts
are used.
Situation 13c:
TAXPAYER is called out to an existing residential site where a new
backflow preventer valve has been installed on an existing water system.
A function test is performed on the valve by TAXPAYER The function test
failed and repairs to the valve are made by TAXPAYER A charge for the
testing, the new parts used and the repair is levied by TAXPAYER to the
Owner.
Situation 14a:
TAXPAYER is called out to an existing residential site where a new
backflow preventer valve has been installed on an existing water system
by a construction sub-contractor. A function test is performed on the
valve by TAXPAYER A charge for the testing is levied by TAXPAYER to the
sub-contractor.
Situation 14b:
TAXPAYER is called out to an existing residential site where a new
backflow preventer valve has been installed on an existing water system
by a construction sub-contractor. A function test is performed on the
valve by TAXPAYER The function test failed and repairs to the valve are
made by TAXPAYER A charge for the testing and the repair is levied by
TAXPAYER to the sub-contractor. No new parts are used.
Situation 14c:
TAXPAYER is called out to an existing residential site where a new
backflow preventer valve has been installed on an existing water system
by a construction sub-contractor. A function test is performed on the
valve by TAXPAYER The function test failed and repairs to the valve are
made by TAXPAYER A charge for the testing, the new parts used and the
repair is levied by TAXPAYER to the sub-contractor.
Situation 15a:
TAXPAYER is called out to an existing residential site where TAXPAYER
installs a new backflow preventer valve on a new water system. A
function test is performed on the valve by TAXPAYER A charge for the
installation and testing of the valve is levied by TAXPAYER to the
property Owner.
Situation 16a:
TAXPAYER is called out to an existing residential site where TAXPAYER
installs a new backflow preventer valve on an existing water system. A
function test is performed on the valve by TAXPAYER A charge for the
installation and testing of the valve is levied by TAXPAYER to the
property Owner.
COMMERCIAL - LAWN IRRIGATION
Situation 17a:
TAXPAYER is called out to a new construction commercial site where TAXPAYER
designs and installs a complete new lawn irrigation system. A charge
for the design, materials and installation labor is levied by TAXPAYER
to the property Owner.
Situation 18a:
TAXPAYER is called out to an existing commercial site where TAXPAYER
designs and installs a complete new lawn irrigation system. A charge for
the design, materials and installation labor is levied by TAXPAYER to
the property Owner.
Situation 19a:
TAXPAYER is called out to an existing commercial site where TAXPAYER
performs repairs on a new lawn irrigation system. A charge for the
materials and installation labor is levied by TAXPAYER to the property
Owner.
Situation 20a:
TAXPAYER is called out to an existing commercial site where TAXPAYER
performs repairs on an existing lawn irrigation system. A charge for the
materials and installation labor is levied by TAXPAYER to the property
Owner.
RESIDENTIAL - LAWN IRRIGATION
Situation 21a:
TAXPAYER is called out to a new construction residential site where TAXPAYER
designs and installs a complete new lawn irrigation system. A charge
for the design, materials and installation labor is levied by TAXPAYER
to the property Owner.
Situation 22a:
TAXPAYER is called out to an existing residential site where TAXPAYER
designs and installs a complete new lawn irrigation system. A charge for
the design, materials and installation labor is levied by TAXPAYER to
the property Owner.
Situation 23a:
TAXPAYER is called out to an existing residential site where TAXPAYER
performs repairs on a new lawn irrigation system. A charge for the
materials and installation labor is levied by TAXPAYER to the property
Owner.
Situation 24a:
TAXPAYER is called out to an existing residential site where TAXPAYER
performs repairs on an existing lawn irrigation system. A charge for the
materials and installation labor is levied by TAXPAYER to the property
Owner.
COMMERCIAL-DESIGN/ENGINEERING
Situation 25a:
TAXPAYER is contracted by an Registered Professional Architect/Engineer
or property Owner to provide the design engineering of lawn irrigation,
plumbing or fire protection systems. The final product consists of
design calculations, construction drawings and construction
specifications for bidding by construction contractors. The engineering
provided may be for either new or existing (remodel) commercial or
residential construction.
Situation 26a:
TAXPAYER is contracted by an Registered Professional Architect/Engineer,
property Owner or municipality to provide inspection services on law
irrigation, plumbing or fire protection systems. The service provided is
an inspection of installed systems for the conformance to code
requirements or contract documents. The inspection provided may be for
either new or existing (remodel) commercial or residential construction.
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