When were lump-sum HVAC filter and preventive-maintenance contracts taxable in Texas?

Plain-English summary

A company regularly changed central-air filters, inspected heating and cooling units, cleaned return-air vents, and sold preventive-maintenance plans to commercial customers.

Regular filter service and preventive maintenance were nontaxable maintenance. The provider owed tax when buying the taxable filters, supplies, and parts used to perform that work. A separately stated frame charge was taxable if it was a sale of tangible personal property.

Plan 1 covered preventive maintenance but not repair labor or parts. Its lump-sum charge was nontaxable, while additional repair and parts charges were taxable.

Plan 2 included maintenance, repairs, parts, and supplies for one lump sum. It remained a nontaxable maintenance contract while repair charges were 5% or less of the total charge. If repairs exceeded 5%, the entire contract price was taxable.

What this means for you

The contract's contents and separately stated charges mattered. Including a small amount of repair work did not automatically convert the plan, but crossing the stated 5% threshold made the whole mixed contract taxable.

Common questions

Was regular filter replacement taxable to the customer? No under the maintenance treatment described.

Who paid tax on filters and supplies used in maintenance? The service provider paid tax when purchasing them.

Were extra repair and parts charges taxable under Plan 1? Yes.

When was the Plan 2 lump sum nontaxable? When repair charges were 5% or less of the total.

What happened above 5%? The entire contract price became taxable.

Citations and references

• 34 Tex. Admin. Code Rule 3.357 (nonresidential 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/9011L1061D01

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TEXAS 78774

BOB BULLOCK
Comptroller November 30, 1990

Dear **:

Thank you for your letter regarding taxability of services pro-
vided to commercial businesses.

As I understand from your letter and our telephone conversa-
tion, *** provides a filter maintenance service in which
air conditioning filters on central air conditioning units are
changed on a two, four, six, or eight week or quarterly basis
depending upon the customer's kind of business. The contract
provides for "Regular Service" which includes a visual inspec-
tion of the air conditioning unit, cleaning the return air
vents, and changing the filter on a regular predetermined basis;
a "First Time Only Frame Charge"; and "Preventive Maintenance"
which is an annual or bi-annual preventative maintenance check
of the heating unit and the air conditioning unit. The charges
for these services are separately stated.

The "Regular Service" and the "Preventive Maintenance" are
maintenance and the charges to the customer are not taxable.
All taxable items used in providing the maintenance services
are taxable to ** at the time of purchase. If the "Frame
Charge" is for the sale of tangible personal property, sales
tax must be collected from the customer.

**** also provides maintenance program plans. Plan 1 in-
cludes preventative maintenance. Labor and parts for repairs
are not included. Plan 2 includes preventative maintenance and
repairs as well as the parts and supplies for maintenance and
for repairs. Both of these plans are for lump-sum charges.

A lump-sum contract for maintenance is not taxable if the con-
tract is only for maintenance as defined in Rule 3.357. Sepa-
rately stated charges or additional charges to the customer for
parts or materials are taxable.

The charge to the customer for Plan 1 is not taxable. **
is responsible for the tax on all supplies and parts used in
providing the maintenance. Sales tax must be collected on the
additional charge for the repair and parts.

Plan 2 includes maintenance and repair. 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. The lump-sum
charge to the customer for Plan 2 is not taxable as long as the
charges attributable to repairs are 5% or less of the overall
charge. If the repair charges exceed 5% of the overall charge,
the total contract price is taxable.

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

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

Sincerely,
Jo Ann Dieck
Tax Correspondence