Was labor to install a rubber lining in a Texas storage tank taxable as remodeling or exempt as new construction?

Plain-English summary

The Comptroller treated the described tank as a permanent improvement to real property. Whether labor to install its rubber lining was taxable depended on the tank's condition and use.

If the lining was installed in an unfinished tank before the tank's first use, the labor qualified as nontaxable new-construction labor. If the tank had already been finished or used, installing a new lining was taxable remodeling of existing nonresidential real property.

For existing-property work, a separated contract required tax on the agreed materials price. With a lump-sum charge, the customer owed no tax on the charge and the contractor owed tax on its materials cost.

What this means for you

Under this 1991 letter, the same physical lining work could receive different treatment depending on whether it completed a new, unused tank or remodeled an existing one. Project records should establish when the tank was finished and first used, as well as the contract's billing format.

Common questions

Was the tank treated as real property? Yes. The letter said it could be considered a permanent improvement to real property.

When was lining-installation labor nontaxable? When the lining was installed in an unfinished tank before its initial use.

When was the work taxable remodeling? When the tank had already been finished or previously used.

How were separated and lump-sum contracts handled? A separated contract put tax on the agreed materials price; under a lump-sum contract, the contractor paid tax on materials and no tax was due from the customer on the lump-sum charge.

Citations and references

• Comptroller Rule 3.291 (contractors)
• 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/9103L1097F11

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

JOHN SHARP
Comptroller March 29, 1991

Dear *:

Thank you for your letter concerning installation of a rubber
lining inside a new 301 diameter x 401 high open tank.

The tank you described can be considered a permanent improvement
to real property. The total charge, including labor, to repair or
remodel existing nonresidential real property is taxable to the
customer. New construction labor is not taxable. If materials
and labor are separately stated to the customer, tax is collected
from the customer only on the agreed contract price of materials.
If the charge to the customer is lump-sum, no tax is due from the
customer. The contractor owes tax on the cost of the materials.

If the lining was installed in an unfinished tank prior to initial
use of the tank, the labor can be considered nontaxable new
construction labor. You are subject to the guidelines given in
Rule 3.291-Contractors (copy enclosed).

If the tank had been finished out or used previously, installation
of the new lining will be considered taxable remodeling of an
existing nonresidential structure. Please review the enclosed
Rule 3.357-Real Property Repair and Remodeling.

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 from
anywhere in the United States or phone 512/463-4600.

Sincerely,
Julie Pesl
Tax Administration Division