How did Texas tax carpet installation in nonresidential remodeling, residences, new construction, additions, and previously unoccupied space?

Plain-English summary

Installing, replacing, or upgrading carpet in nonresidential property was taxable remodeling. Tax applied to the total charge whether materials and labor were separately stated or combined.

Wall-to-wall residential carpet installation, new-construction carpeting, carpeting new additions, and finishing out previously unoccupied space were contractor work. Materials were taxable and labor was not; the lump-sum or separated contract format determined whether the contractor paid suppliers or collected from the customer.

A contract combining remodeling and new construction was taxable in full unless labor for the newly constructed area was separately stated. The letter also directed taxpayers to amended returns and Rule 3.325 if tax had been collected or reported incorrectly.

Common questions

Was nonresidential replacement carpet taxable? Yes, on the total charge.

Was new-construction carpet labor taxable? No.

How was a mixed contract handled? It was fully taxable unless the new-construction labor was separately stated.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9003L0992D06

Original ruling text

March 14, 1990

Dear ***:

Thank you for your recent letter regarding the taxability of carpet sales
and installations.

As of January 1, 1988 installing, replacing, or upgrading of carpet in
locations other than residences is treated as real property remodeling. The
total charge is taxable whether the charges are separately stated or not. This
is covered under Rule 3.357 on real property repair and remodeling.

The sale and installation of wall-to-wall carpet in residences has not
changed and is still handled under Rule 3.291 on contractors. Also, if you are
carpeting a building under a contract for new construction, carpeting new
additions to existing structures or finishing out a previously unoccupied
space, you are considered a contractor. Materials are taxable and labor is
not. The type of contract (lump-sum or separated) determines whether you will
collect tax from your customer or pay tax to your supplier at the time of
purchase.

A contract that covers both remodeling and new construction will be
taxable in total unless the labor to carpet the newly constructed area is
separately stated.

If after reviewing the above information you decide that tax has been
collected in error from your customers, or that you have incorrectly reported
the tax due on your returns, you should file amended returns to correct the
data. Attach a letter that explains the reason for the amendment and either
request a refund or apply the credit to future returns. Refer to the enclosed
Rule 3.325 on refunds.

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 5-0330. The regular number is
512/463-4600, or write me at Tax Correspondence, Comptroller of Public
Accounts.

Sincerely,

Bettie U. Peterson
Tax Correspondence Division