How did Texas tax installation of security systems and stand-alone fire alarms during new construction and remodeling?

Plain-English summary

Licensed security services included selling, installing, monitoring, and maintaining surveillance, burglar-alarm, access-control, CCTV, and related security systems. Those services were taxable whether installed during a building's initial construction or during later repair or remodeling.

A combined security/burglar and fire-alarm system was treated as a taxable security service.

A stand-alone fire-alarm system was instead an improvement to realty. Its installation was nontaxable as part of new construction but taxable when performed as nonresidential remodeling.

Materials installed and resold through a taxable security service or nonresidential fire-alarm remodeling could be bought for resale. Materials for a new-construction fire alarm were taxed to the end consumer determined under the lump-sum or separated contract rules.

Common questions

Security-system installation during new construction taxable? Yes.

Combined security and fire alarm taxable as security service? Yes.

Stand-alone fire alarm in new construction taxable? The installation was not taxable under the letter.

Stand-alone fire alarm in nonresidential remodeling taxable? Yes.

Citations and references

• Comptroller Rules 3.291, 3.333, and 3.357.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9006L1026E01

Original ruling text

June 8, 1990

Dear***:

I am writing in response to your correspondence regarding the
taxability of the installation of electronic surveillance
systems. I apologize to you for the delay in providing this
response.

Your letter stated that your company permanently installs
electronic surveillance systems in commercial buildings during the
construction phase. You also install these systems in existing
buildings. You further stated that the electronic surveillance
systems you install include Access Control Systems, Closed
Circuit Television Systems (CCTV), Fire Alarm Systems, Intercom
Systems, or all of these combined into one system. The materials
used are embedded in and/or permanently affixed to the land or
structure.

Your letter continued to provide detailed information of the
vasious systems, how they are installed, and how they function.
Your primary concern is whether the installation labor is taxed
as part of new construction and/or as a part of non- residential
remodeling dependent upon the contract.

Your letter did not state that your company is required to be
licensed under the Private Investigators and Private Security
Agencies Act. However, the letterhead does provide a state
license number, and it is our understanding from this industry
that the installation of security systems (surveillance, burglar,
etc.) is an activity that requires such a license.

Based upon the information in your letter and the information
obtained from this particular industry, the services your company
performs are taxable as security services. These services became
taxable October 1, 1987.

Security services include the functions of selling, installing,
monitoring, and maintaining security systems. The application of
sales tax does not change whether the installation occurs during
the initial construction of a building or occurs during repair
or remodeling of an existing building. See Rule 3.333 - Security
Services.

The installation of a combination security/burglar and fire alarm
system will be treated as a security service. However, the sale
and installation of a fire alarm system that is separate and apart
from a security/ burglar alarm system is not treated as a
security service but rather as an improvement to realty.

The installation of the fire alarm system separate from any
security system is taxed when the job is non- residential
remodeling and is not taxed when the fire alarm system is installed
as a part of a new construction contract. See Rules 3.291 -
Contractors and 3.357 - Real Property Repair and Remodeling.

Materials and equipment purchased to be installed and resold as
a part of a taxable security service or installation of a fire
alarm system which is non-residential repair or remodeling may be
purchased tax-free for resale. You must issue a resale certificate
to your supplier at the time of purchase. Fire alarm materials and
equipment purchased to be installed as part of a new construction
contract are taxable to the end consumer. The end consumer is
determined by the type of contract: lump-sum or separated.
Please refer to Rule 3.291.

Should your company perform any other services such as separate
fire alarm installation which do not require a license as discussed
in Rule 3.333 (a), please call or write with specific details and
a response will be provided.

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

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

Sincerely,

Tax Policy Division
Tax Correspondence