Was installing or upgrading central air conditioning in an existing nonresidential building taxable, and were separate design fees taxable?

Plain-English summary

The work increased cooling capacity in an existing nonresidential building under one design-and-engineering contract and one construction contract expanding the central cooling plant.

The total charge to install a new central air-conditioning system or upgrade an existing system in existing nonresidential real property was taxable. Calling the work area "new space" did not change that answer.

Separately stated design and engineering charges were not taxable.

What this means for you

The construction remained a taxable improvement to existing nonresidential property, while a genuinely separate professional-services charge retained different treatment.

Common questions

Was the HVAC installation or upgrade taxable? Yes, in full.

Did expanded or "new" space make it nontaxable? No.

Were separately stated design and engineering fees taxable? No.

Citations and references

• Comptroller Rule 3.357 — real-property repair and remodeling

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9009L1043B12

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TX 78774

BOB BULLOCK
Comptroller

September 7, 1990

Dear ****:

Thank you for your recent letter concerning the contract that
Company A is in the process of negotiating with Company B.

You indicated that the purpose of the work is "to increase
cooling capacity" in an existing nonresidential building. The
work is to be performed under two separate contracts, one for
design and engineering services only and the other for "expan-
sion of the central cooling plant at a single facility."

Question 1. Due to the fact that all work is taking place in
an expanded area of the building (i.e., "new space") is the
remodel/repair tax applicable to any portion of the work?

Answer: The total charge for installing a new central air con-
ditioning system or upgrading an existing system in existing
nonresidential real property is taxable.

Question 2. If the remodel/repair tax is applicable, does it
apply to the contract for design and engineering services or
only the contract for construction?

Answer: The separately- stated charges for design and engi-
neering services are not taxable.

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

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