Was a separately stated charge for a technical specialist's future installation advice taxable with the sale of an oil-well packer?

Plain-English summary

An oil-well-packer manufacturer offered a technical specialist when a customer requested one at the time it ordered a packer. The specialist advised on installation but did no hands-on installation, and the service charge was separately stated on the same invoice.

The Comptroller concluded that the service was taxable under Tax Code Section 151.007(b) because it was "part of the sale" of the packer. Hearing No. 17,610 had reached the same result on virtually identical facts.

The requester argued that the sale ended when title or risk of loss passed at the seller's shipping dock, before the specialist performed the service. The Comptroller rejected that argument. A taxable transaction could include a charge for a service to be performed in the future, and passing title before performance did not prevent a connected service from remaining part of the sale.

What this means for you

Separate invoicing and later performance did not control the result. The letter looked at the commercial connection: the customer requested the specialist with the product, the service accompanied the sale, and both appeared on the same invoice.

This historical letter does not say every post-sale service is taxable. Its conclusion rests on the service being part of the original taxable transaction.

Common questions

Was the separately stated specialist charge taxable? Yes.

Did it matter that the specialist only advised and did no installation work? No. The advice still accompanied and was part of the packer sale.

Did performing the service after title passed make it nontaxable? No. The Comptroller said a taxable sale can include future services.

What prior authority did the letter cite? Comptroller Hearing No. 17,610, described as involving virtually identical facts.

Citations and references

• Texas Tax Code Section 151.007(b) — services that are part of a sale.
• Comptroller Hearing No. 17,610 — prior administrative decision cited by the letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9108L1131C09

Original ruling text

August 6, 1991

Dear *****:

Thank you for your recent letter and telephone call. As I
understand it, your client manufactures and sells oil well
packers. At the customer's request, your client will also
supply a technical specialist, the charge for whose services
is separately stated on the same invoice with the packer.
A customer will request the specialist's services at the
same time as the packer is ordered. The specialist provides
advice on packer installation, but does not perform any
hands-on installation. You ask whether tax is due on the
separate charge for the specialist's services.

This service is taxable as a service "that is a part of the
sale" of the packer. Tax Code Sec. 151.007 (b).

This issue was previously addressed in an administrative
hearing decided on virtually identical facts. Hearing No.
17,610 (copy enclosed). Tax was found to be due in that
hearing for the entire audit period, which dated back to
October 1, 1978.

However, you present the argument (not advanced in the
above-referenced hearing) that the sale of the packer is
completed upon the transfer of title or risk of loss to the
customer at the seller's shipping dock. You suggest that it
follows that, because the sale has been "completed" at that
time, the specialist's subsequent serviced cannot be part of
that sale. This argument is not persuasive.

For one thing, the statute does not extend tax to cover only
services performed before a "sale". It taxes services that
are "part of the sale". A taxable sale transaction may
include a charge for services to be performed in the future.
In this case, even if we agreed that the sale was
consummated at the shipping dock, this does not preclude
taxation of a not-yet-performed service that accompanies the
sale of the item and is a part of the taxable transaction.

Further, to follow your reasoning would defeat taxation of
the lion's share of services that are part of the sale of
taxable items. In other words, if your argument were
accepted, a seller would be able to structure virtually
every sale of tangible personal property so that title to
the property passed to the customer prior to the performance
of or billing for any connected services. This runs
contrary to the clear intent of the legislature to tax such
connected services.

This opinion is based on the facts presented. Different
facts, though similar, might lead to different answers. If
you have further questions, feel free to write or call me at
1-800-252-5555, ext. 3-3889.

Sincerely,

John Christian
Attorney
Tax Administration