When was labor to install an internal or external hard drive or memory card taxable, depending on who sold the component and whether it went inside the computer?

Plain-English summary

Installing a hard drive or memory card inside a customer's computer was taxable labor. Replacing a defective internal component was repair; adding one to enhance capability was remodeling.

When the customer bought an external component from another vendor, labor to connect it externally was nontaxable because it was neither internal repair nor installation connected with the installer's own sale.

If the customer bought the component from the installer and later returned for installation, internal labor remained taxable as repair or remodeling. External labor was also taxable because it was connected with the installer's sale of tangible personal property; the letter said such installation charges had been taxable since October 1, 1987 even when separately billed.

The letter contrasted computers with automobiles: computer replacement labor was taxable, while automotive repair labor was specifically exempt under the cited rule; parts were taxable in both cases.

Common questions

Internal replacement labor taxable? Yes.

Internal upgrade labor taxable? Yes.

External installation of a part bought elsewhere taxable? No.

External installation of a part sold by the installer taxable? Yes.

Citations and references

• Comptroller Rules 3.292 and 3.308(a)(4).

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9008L1079G12

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TEXAS 78774

BOB BULLOCK
Comptroller September 24, 1990

Dear **:

I am responding to your letter of August 31, 1990, wherein you
have inquired about labor charges relative to computer hardware.
Initially, I would like to refer you to the enclosed Rule 3.308
Computers - Hardware, Software, Sales and Services. This rule
addresses more directly, the treatment of labor charges on
computer hardware and software.

In your first situation, you are installing a hard drive or memory
card on a customer's computer. The customer purchased the
component from another vendor and paid sales tax on the equipment
at the time of purchase. If you are installing the disk or
card inside the computer, then your labor will be taxable as
repair or remodeling of tangible personal property. That is, if
you are replacing a defective card or disk, your labor will be
repair labor. If you are enhancing the computer's capability by
adding this component, then your labor will be considered
remodeling. Please refer to the enclosed Rule 3.308 (a)(4).

If you are installing an external hard drive or other external
component on the computer, your labor would not be taxable.
Installation charges are taxable only when in connection with the
sale of tangible personal property. Unlike above, this
installation is not considered repair or maintenance because the
component is not being installed internally.

In your next situation, your customer has purchased the item from
you with the intent of installing it himself. He brings it back
to you at a later date and has you do the installation. As
explained above, if you are installing the component inside the
computer, then your labor will be taxable as repair or remodeling.

If you are installing the component externally, your labor will be
taxable because the installation charge is in connection with the
sale of the tangible personal property. As of October 1, 1987,
installation charges in connection with the sale of tangible
personal property became taxable even if the charges were stated
or billed separately.

It is difficult to compare computer repairs to automotive repairs
because the law specifically exempts repair labor on automobiles
as you noted in Rule 3.292. Therefore, you are correct in that
the labor to replace a worn out disk drive is taxable while the
labor to replace a worn out tire is not. In both instances,
however, parts are taxable.

In addition to Rule 3.308, I have also enclosed a copy of Rule
3.292 regarding repair, remodeling, maintenance, and restoration
of tangible personal property.

The above response is based on the facts provided. Additional or
different facts may cause this response to change.

If you have any further questions, please contact Tax
Correspondence. You may write to the above address or call toll
free 1-800-252-5555.

Sincerely,
Brad Gabbart
Tax Correspondence