Were lighting and HVAC/refrigeration maintenance agreements taxable when they covered both real property and tangible personal property?

Plain-English summary

A retailer had lighting and HVAC/refrigeration repair-and-maintenance agreements covering 47 stores.

The lighting agreement was taxable in full. Maintaining and replacing fluorescent lamps and cleaning lighting equipment were real-property services under Rule 3.356(a)(1), while additional repairs to fixtures or signs that were improvements to realty were taxable under Rule 3.357.

The HVAC/refrigeration agreement was also taxable in full because one charge covered both tangible personal property and possible real property, including walk-in or built-in coolers, refrigerated cabinets, ice equipment, cases, and a prep table.

The letter said tangible-personal-property maintenance and repair had been taxable since October 2, 1984. Real-property maintenance contracts were not taxable, and repairs did not change that result when repair charges were five percent or less of the overall charge. If repairs exceeded five percent, the entire maintenance contract was taxable unless repair charges were separately identified. If tangible-personal-property charges were separately stated, the real-property maintenance charge could remain nontaxable when repairs were five percent or less.

What this means for you

A single price covering taxable tangible-personal-property work and potentially nontaxable real-property maintenance made the mixed contract fully taxable here. Separate statement was central to preserving any nontaxable component.

Common questions

Was the lighting agreement taxable? Yes, in full.

Was the single-charge HVAC/refrigeration agreement taxable? Yes, in full.

Could a real-property maintenance contract remain nontaxable with some repairs? Yes, when repair charges were five percent or less under the stated rule.

What if repairs exceeded five percent? The contract was fully taxable unless the repair charges were separately identified.

Citations and references

• Comptroller Rule 3.356(a)(1) — real-property services
• 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/9009L1045C01

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller September 12, 1990

Dear **:

Thank you for your letter regarding sales tax applicable to two con-
tracts (Lighting Service Agreement and Heating, Air conditioning, and
Refrigeration Agreement Repair and Maintenance Agreement) that you
have for forty-seven stores.

The Lighting service Agreement to provide lighting maintenance with
respect to interior and exterior fixtures and signs is taxable in
total. The maintenance and replacement of fluorescent lamps and clean-
ing lighting equipment are real property services. Please refer to
Section (a) (1) of Rule 3.356 Real Property Service. If the service
company performs repairs to lighting fixtures and signs that are im-
provements to realty, the additional charge for repairs would be taxa-
ble as explained in Rule 3.357 Real Property Repair and Remodeling.

The Heating, Air Conditioning, and Refrigeration Agreement Repair and
Maintenance Agreement is taxable in total. The contract provides for
repair and maintenance of tangible personal property and repair and
maintenance of real property for a single charge. Exhibit A lists the
items to be maintained and repaired as walk-in and built-in coolers
(which may be real property) and various refrigerated cabinets, ice
equipment, cases, and prep table that are tangible personal property.

The maintenance and repair of tangible personal property is taxable
effective October 2, 1984. Real property maintenance contracts are
not taxable and repairs performed under a maintenance contract will
not change a maintenance contract into a repair contract as long as
the charges attributable to repairs are 5% or less of the overall
charge. Maintenance contracts with repair charges exceeding 5% are
taxable in total unless the charges for repairs are separately identi-
fied in the contract.

If the charge for the maintenance and repair of tangible personal
property was separately stated in the contract, the charge for the
maintenance and repair of real property would not be taxable if the
charge attributable to the repairs was 5% or less of the charge.

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

If you have any questions or need additional information, you may call
toll free 1-800-252-5555, or the regular number 512/463-4600. My exten-
sion is 3-4666. You may write to Tax Correspondence, Comptroller of
Public Accounts.

Sincerely,
Jo Ann Dieck
Tax Correspondence