How did Texas tax rented water-conditioning systems, salt used in the service, sold-and-installed systems, and scheduled maintenance in existing nonresidential buildings?

Plain-English summary

The water-conditioning service itself was nontaxable. But the provider was the consumer of the equipment and materials used to perform that service, so it owed tax when purchasing rental systems and sodium chloride used in softening water.

When the company sold and installed equipment that became a permanent part of an existing nonresidential building, it performed real-property remodeling and had to collect tax on the total equipment charge.

Regularly scheduled maintenance meeting Rule 3.357(a)(3) and (c)(2) was nontaxable.

Common questions

Was the water-conditioning service taxable? No.

Could rental equipment and salt be bought tax-free for resale? No. The provider owed tax on those inputs.

Was a sold permanent system taxable? Yes, as remodeling of existing nonresidential real property.

Was qualifying scheduled maintenance taxable? No.

Citations and references

• Comptroller Rule 3.357(a)(3) and (c)(2).

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9008L1039F07

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TEXAS 78774

BOB BULLOCK
Comptroller August 24, 1990

Dear *:

Thank you for your recent letter concerning sodium chloride used
or consumed in water conditioning equipment.

You indicated in our telephone conversation on August 23 that you
sell or rent and install water conditioning equipment in existing
nonresidential buildings. You said that the equipment becomes a
permanent part of the existing water system although, in most
cases, the equipment remains your property and is rented to custo-
mers for indefinite lease periods. You provide all of the neces-
sary maintenance of the equipment.

The water conditioning service that you provide for your customers
is not taxable. All rental equipment and materials that you use
to provide your service are taxable to you at the time of purchase.
This includes the sodium chloride which is used in the water soften-
ing process.

If you sell and install equipment tha t becomes a permanent part of
an existing nonresidential building, you are remodeling real proper-
ty. You must collect tax on the total charge to your customer for
the equipment. If you maintain the equipment on a regularly sched-
duled basis as described in sections (a)(3) and (c)(2) of Rule 3.357,
the maintenance is not taxable. Rule 3.357 on real property repair
and remodeling is enclosed for your review. I have also enclosed
copies of other correspondence and an administrative hearing that
dealt with this subject.

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