Was rental of heaters and dehumidifiers exempt when the equipment was necessary to apply a coating to structural steel?

Plain-English summary

A contractor sandblasted and coated erected structural steel. The coating required the steel surface to remain between 70 and 130 degrees Fahrenheit, so the contractor used kerosene heaters in winter and rented dehumidifiers beginning in May.

The Comptroller said the equipment's necessity for temperature and humidity control did not create a sales-and-use-tax exemption. The contractor equipment-rental exemption described in the letter applied to new construction or real-property repair or remodeling for an entity with qualifying exempt status, but it did not extend to federal-government jobs.

If the contractor instead coated steel while it remained tangible personal property, the work was processing. The letter said there was no exemption for rental equipment used in that manufacturing process.

What this means for you

Operational necessity alone did not exempt a rental. The answer also changed neither when the work was characterized as a federal realty contract nor when it was characterized as processing tangible personal property.

Common questions

Did the required temperature range make the rental exempt? No.

Did the contractor exemption described in the letter cover federal jobs? No.

Was rented equipment exempt if the coating work was manufacturing or processing? No.

Citations and references

• Comptroller Rules 3.291, 3.300, and 3.357

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9010L1057A03

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller October 17, 1990

Dear ** :

Thank you for your recent letter regarding sales tax applicable to
the rental of a dehumidifier unit that was rented for use at the
construction site for CORP X.

You stated that the particular coating that your business applied
to the structural steel requires the maintenance of the steel sur-
face temperature between 70 to 130 degrees Fahrenheit. Kerosene
heaters were necessary during the winter months to heat the work
area in order to maintain the steel surface temperature above 70
degrees. Beginning in May, it became necessary to cool the work
area with rented Air-Dex units (dehumidifiers) to maintain the
steel surface temperature below 130 degrees. As I understand from
a telephone conversation with your office, ABC COMPANY has a crew
at the job site. After the steel is erected by the contractor,
your crew will sand blast and apply the coating to the steel.

Although the heaters and/or dehumidifiers may be necessary for
temperature and humidity control for proper coating applications,
this is not a basis for exemption from the sales and use tax. The
exemption for equipment rentals by contractors is for equipment to
be used in improving realty for an entity that has qualified for
sales tax exempt status. The exemption applies to contracts for
new construction and for repair or remodeling of real property.
However, this exemption does not extend to jobs with the federal
government.

If there are transactions where you apply coating to steel (as
tangible personal property vs improvement to realty), you are con-
sidered to be processing tangible personal property. There is no
exemption for rental equipment used in the manufacturing process.

Enclosed are Rules 3.291, 3.300, and 3.357 for your information.

This opinion is based on the facts presented. If there are addi-
tional 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 extension is 3-4666. You may write to Tax Correspondence, Comp-
troller of Public Accounts.

Sincerely,
Jo Ann Dieck
Tax Correspondence