Was labor for an annual acid wash of a large vessel treated as nontaxable real-property maintenance?

Plain-English summary

The requester asked about an annual acid wash of a large vessel stated to be real property.

The Comptroller said the wash qualified as maintenance if it kept the property in good working order and the requester could establish that it occurred on a scheduled, periodic basis. Under Rule 3.357(a)(3), maintenance covered scheduled periodic work needed to sustain safe, efficient, continuous operation or prevent deterioration.

The labor to maintain real property was not taxable under the letter, but the service provider had to pay tax on all items used. Rule 3.357(c)(2) governed exemption certificates and records documenting maintenance rather than repair labor.

What this means for you

The purpose and scheduling of the work mattered. An annual preventive service could be maintenance, but the taxpayer needed records showing that it was periodic maintenance rather than repair.

Common questions

Was annual acid-wash labor taxable? Not if the stated maintenance conditions were met.

What had to be documented? That the wash occurred on a scheduled periodic basis and maintained the property rather than repaired it.

Who paid tax on the materials used? The service provider.

Citations and references

• 34 Tex. Admin. Code Rule 3.357(a)(3) — definition of real-property maintenance
• 34 Tex. Admin. Code Rule 3.357(c)(2) — exemption certificates and maintenance records

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9104L1106E13

Original ruling text

April 24, 1991

Dear **:

Thank you for your letter regarding sales tax applicable to an annual acid wash
of a large vessel which you stated is real property.

Maintenance of real property is defined in Rule 3.357(a)(3) as, "All scheduled
periodic work on operational and functioning improvements to real property
necessary to sustain or support safe, efficient, continuous operations or to
keep in good working order by preventing the decline, failure, lapse, or
deterioration of the improvement."

If the acid wash is performed to keep the real property is good working order,
the acid wash will qualify as maintenance as long as you can establish that the
acid wash is performed on a scheduled periodic basis. The labor to maintain
real property is not taxable. The person providing the maintenance must pay tax
on all items used. Please see section (c) (2) of Rule 3.357, Real Property
Repair and Remodeling, regarding the issuance of an exemption certificate to
the service provider and the records required to document that maintenance
rather than repair labor was performed.

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 extension is 3-4666.
You may write to Tax Administration Division.

Sincerely,

Jo Ann Dieck
Tax Administration Division