Could a Texas nonresidential repairman rent job equipment tax-free for resale or deduct its taxed cost from the customer bill?

Plain-English summary

A repairman rented equipment to perform taxable nonresidential real-property repair and remodeling.

The repairman used rather than resold the rental equipment, so tax was due at the time of rental and a resale certificate could not be issued. The rental cost became an expense of performing the job.

The repairman still had to collect tax on the full price billed to the customer, including the amount attributable to the taxed equipment rental. Texas did not treat that as taxing one transaction twice: the repairman's equipment rental and the customer's repair service were separate transactions.

Neither the repairman nor the customer received a credit for tax paid on equipment, materials, or supplies used but not incorporated into the realty.

What this means for you

Passing an equipment-rental cost through to a customer did not turn the equipment into property bought for resale or reduce the taxable service price.

Common questions

Could the repairman issue a resale certificate for rental equipment? No.

Who paid tax on the equipment rental? The repairman.

Was the customer billing still fully taxable? Yes.

Was a credit allowed for the rental tax? No.

Citations and references

• 34 Tex. Admin. Code 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/9010L1048D09

Original ruling text

October 2, 1990

Dear ***:

Thank you for your recent letter regarding the taxability of equipment
rented for the performance of real property repair and remodeling services.

As referenced in your letter, you are aware that Rule 3.357 specifies that
a repairman or remodeler must pay tax at the time of purchase on materials
and supplies use but not incorporated into the realty. Rental equipment is
used by the repairman or remodeler, and tax must be paid at the time of
rental. A resale certificate, cannot be issued in lieu of tax on the
equipment even though its cost is directly related to the job.

The repairman is required to charge sales tax on the total price billed to
his customer which includes the amount of the rental equipment on which tax
was paid. You question whether or not the State is collecting tax on the same
transaction twice.

The State is not collection tax on the same transaction twice. Sales tax is a
transaction tax imposed upon the purchaser: although these transactions may be
closely related, they are separate and distinct transactions. The repairman
is the purchaser of the rental equipment and uses the equipment to perform the
repair or remodeling; the equipment is not resold to the customer. The cost of
the equipment becomes a cost of performing the real property repair or remodeling.
Neither the repairman nor his customer is entitled to a credit for the tax paid
on materials and supplies used but not incorporated into the realty. Therefore,
the total amount billed to the repairman's customer is taxable even though the
amount includes the cost of rental equipment on which tax was paid at purchase.

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