When were equipment-installation charges taxable if the manufacturer sold the equipment and a separate subsidiary installed it?

Plain-English summary

This letter corrected the Comptroller's May 31, 1989 response.

When the equipment manufacturer billed the customer for both equipment and installation, the entire amount was taxable after October 1, 1987, regardless of separated or lump-sum billing.

If the manufacturer billed only for equipment and its legally separate subsidiary billed only for installation, the installation invoice was nontaxable only when it involved no assembly, no tangible-property sale, and no repair. Assembly was taxable fabrication labor, and installation performed with repair or assembly was taxable even if separately stated. Separate purchase orders were required for the two entities' transactions.

Common questions

Was one manufacturer invoice fully taxable? Yes under the post-October 1987 rule described.

Could the subsidiary's installation be nontaxable? Yes, only as stand-alone installation without assembly, property sale, or repair.

Were separate purchase orders required? Yes.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8912L0977E01

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

December 18, 1989

Dear ****:

This is to correct my letter of May 31, 1989, regarding the taxability of
installation charges, specifically fact situation 2 set out in your May 18,
1989, letter.

You stated that Company A manufactures and sells equipment. This
equipment is then installed at the customer's location by Company B, a
wholly-owned subsidiary of Company A (separate legal entity).

Your questions and responses follow:

1. When the total billing to the customer is received from Company A, the
   total amount is subject to tax.

Response: This is correct as of October 1, 1987, regardless of
lump-sum or separated billing. Prior to October 1, 1987, the installation
would not be taxable if the charge was separately stated and identified on the
billing or invoice to the customer.

A. If Company A were to bill the customer only for the equipment and
Company B were to bill the customer only for the installation, would Company
B's invoice be taxable?

Response: If any or all of the "installation" is in fact assembly
of the equipment, the charge would be taxable as fabrication labor.

If the charge by Company B is installation only with no assembly or sale
of tangible personal property, the charge would not be taxable.

B. If not (not taxable on Company B invoice), would separate purchase
orders be required for Company A and Company B or could the customer provide
one purchase order to Company A to cover all of the work?

Response: Separate purchase orders would be required for the
purchases from Company A and Company B.

2. In addition to providing the installation service, Company B will
   occasionally provide some repair work on equipment at the customer's location.
   Since this repair charge is subject to tax, would the repair charge affect the
   taxability of the installation charge. (This repair work may, occasionally be
   related to the installation service.)

Response: Installation services done in conjunction with the
repair of tangible personal property or assembly labor are taxable whether the
charge is lump-sum or separated. Installation services done on a stand-alone
basis (not in conjunction with repairs or assembly) are not taxable.

Your client will be responsible for proper collection of the tax on
taxable installation charges from this date forward.

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. You may write to Tax
Correspondence, Comptroller of Public Accounts.

Sincerely,
Jo Ann Dieck
Tax Correspondence