Was lowering a concrete product into an excavation prepared by another contractor a taxable sale or an improvement to realty by the manufacturer?

Plain-English summary

This letter expressly reversed the Comptroller's 1977 instruction to the manufacturer.

When the manufacturer merely lowered concrete products to street level or into an excavation prepared by another company, and another company completed the installation, the manufacturer had only delivered the product to the job site. The transaction was a sale, not the manufacturer's improvement to realty, and the manufacturer had to collect tax on the total selling price for future reports.

The attached 1977 letter had reached the opposite result when products were placed into a prepared excavation. The February 1990 reversal is the controlling conclusion within this source.

Common questions

Did lowering the product into the hole make the manufacturer a real-property contractor? No, not when another company prepared the excavation and completed installation.

What amount was taxable? The total selling price.

Did this letter preserve the 1977 position? No. It reversed that earlier determination for future reporting periods.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9002L0980A01

Original ruling text

Comptroller of Public Accounts
State of Texas
Austin, Texas 78774

Bob Bullock
Comptroller February 22, 1990

Dear ***:

It has recently come to our attention that CORP X has been handling
taxes on concrete products in accordance with previous instructions
from this Department. However, it appears that this position is no
longer valid, and this letter serves to reverse that earlier deter-
mination and establish policy for future reporting periods.

In a letter addressed to CORP X from John Pratt, Assistant Comptroller
for Field operations, dated May 20, 1977 the Comptroller's Department
advised you that when concrete products are placed into a prepared
excavation, it is considered an improvement to realty, and the manu-
facturer owed use tax on the cost of the materials.

It is the position of this Department that simply placing the
concrete product into an excavation prepared by another company,
and leaving the final installation to be done by another company,
does not constitute an improvement to realty. This delivery by
the manufacturer, whether the concrete product is lowered to the
street level, or into the prepared hole, is simply delivery to the
job site. This is considered to be a sale, and tax should be
collected from the customer on the total sale price.

This position should be used on all future reports for sales
taxes. If you have any questions, please don't hesitate to
contact me.

Sincerely,
Harold Lee
Deputy Comptroller for Audit Operations

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller May 20, 1977

Attention: ***

Dear ***:

This department has been involved in determining the correct tax status
of items manufactured and delivered by businesses in your industry. The
principal problem is to determine if a sales has occurred or is the
trans-
action of an improvement to realty.

Our field personnel contacted manufacturers, examined plant facilities
and witnessed actual deliveries of products. The information obtained
was forwarded to our legal Services Division for review and recommenda-
tion. It is their opinion that when the concrete products are placed in
a prepared excavation that this would be considered an improvement to
realty and the manufacturer would owe Use Tax on the cost of materials.
If the products are only delivered to the job site this should be con-
sidered a sale and tax should be collected on the total sale price.

The recommendations of our Legal Services Division should be followed in
reporting Sales Tax on future reports.

If you have any questions regarding reporting tax or taxability of your
products, please contact Ledford Kelly in Field Operations Division,
1-800-252-5555, extension 170.

Yours very truly,
John Pratt
Assistant Comptroller
Field Operations