Ezel / Tax Rulings / TX
TX 9001L1018G02 Sales and/or Use Tax (State,Local,MTA) 1990-01-05

Was finishing out a shell taxable when the building had previously been occupied, demolished back to shell condition, and then rebuilt?

Short answer: Yes. Demolishing the previously finished building back to a shell was remodeling, and finishing out that remodeled shell was also taxable nonresidential remodeling rather than initial finish-out work.

Apply this to your situation

This page answers the general question as of 1990. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1990
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 Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded.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

The customer bought a partially occupied retail building. The contractor partially demolished and rebuilt it back to a shell, correctly treating that work as taxable remodeling.

The next contract would finish out part of that shell. Because the shell resulted from remodeling an existing, previously finished building, the new finish-out was also taxable nonresidential remodeling under Rule 3.357.

Common questions

Did returning the building to shell condition restart the initial finish-out exemption? No.

Was the later finish-out taxable? Yes.

Why? It finished out remodeled property rather than a newly constructed shell.

Citations and references

  • 34 Tex. Admin. Code Rule 3.357

Source

Original ruling text

January 5, 1990

Dear **:

Thank you for your inquiry regarding the taxability of finish out of part of a
building.

You indicate that you are general contractors for commercial (nonresidential)
property. Your customer, **, purchased a retail space property in
Houston. The building was partially occupied at the time of purchase. You
then partially demolished and rebuilt the building back to a "shell". You
charged tax for this work because it was considered remodeling.

You are about to enter a contract with ** for the finish out of part
of the "shell" building.

You were correct in considering the initial work on the building as remodeling.
Specifically, you remodeled an existing finished out building into a "shell"
building.

Your total charge to remodel the existing "shell" building for ** is
also taxable. In this case, you are finishing out the remodeled property which
is taxable as remodeling. I have enclosed Comptroller's Rule 3.357 (Real
Property Repair and Remodeling) which address the taxability of remodeling
nonresidential real property.

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

If you have any questions, please contact Tax Correspondence. You may call
toll free 1-800-252-5555, or our regular number is 512/463-4600. My extension
is 3-4662.

Sincerely,

Bob Jeffcoat
Tax Correspondence

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