How did Texas tax wallcovering and floorcovering installation in new, residential, unfinished, addition, and existing nonresidential projects?

Plain-English summary

The seller was a contractor when installing permanent wallcoverings or floorcoverings under a new-construction contract, in unfinished space before first occupancy, in residential property, or in a new addition. Labor was not taxable in those situations. Separated contracts required tax on materials; lump-sum contractors paid tax on their materials rather than charging the customer.

Installing, replacing, or upgrading coverings in existing nonresidential property was taxable on the total charge, including labor, under Rule 3.357.

Professional services not directly related to producing or selling taxable items were not taxable. The letter's example allowed a separately stated consultation fee when the consultant passed through furniture and the tax paid to the dealer at exact cost.

Common questions

Was residential installation labor taxable? No.

Was replacement flooring in existing nonresidential property taxable? Yes, on the total charge.

Could a separate consulting fee be nontaxable? Yes, under the facts described.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9003L0993C12

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller March 7, 1990

Dear *****:

Thank you for your letter concerning the taxability of charges
that you make to your customers for installation of wallcoverings
and floorcoverings, as well as your consultation fees.

My response is based on the assumption that you hire subcontractors
to install wallcoverings and floorcoverings that become permanent
improvements to real property.

You are considered a contractor and subject to the provisions of
Rule 3.291 in the following situations.

installing floor or wall covering under the terms of a new
construction contract

installing floor or wall covering in unfinished structures
prior to initial occupancy

installing floor or wall covering in residential property

installing floor or wall covering in new additions to
existing structures

The labor is not taxable in the situations listed above. If you
charge separate amounts for materials and labor, you must collect
tax on the total charge for materials. If you have a lump-sum
contract with your customer, you will not charge tax to your
customer. A lump-sum contractor owes the tax on materials. Your
subcontractors must follow the same guidelines in determining
whether or not to charge tax to you. If you are buying materials
for resale to your customers, then you may issue a resale
certificate to your supplier or separated subcontractor.

The total charge including labor, to repair, remodel or restore
existing, nonresidential real property became taxable January 1,
1988. You must collect sales tax from your customer in the
following situations:

installing floor or wall covering in an already existing
nonresidential structure

replacing or upgrading floor or wall covering in a
nonresidential structure

Rule 3.357 on real property repair and remodeling is enclosed for
your reference.

Charges for professional services not directly related to the
production or sale of taxable items are not taxable. For example,
if you bought furniture from a dealer, paid sales tax to the
dealer, and charged your client the exact amount that you paid for
the furniture and tax, then you would not be required to collect
tax on a separately stated fee for consultation.

This opinion is based upon the facts you presented. If there are
additional or different facts, this opinion may change.

Please feel free to contact me if you have any additional
questions. You may write me, call toll free 1-800-252-5555 (ext.
3-4685) from anywhere in the United States or phone 512/463-4685.

Sincerely,
Julie Pesl
Tax Correspondence