How did Texas tax underground-irrigation installation, repair, remodeling, and complete replacement for residential and nonresidential property?

Plain-English summary

For repairs or revisions to an existing irrigation system, the total labor-and-material charge was taxable on nonresidential property. On residential property, materials were taxable but repair or remodeling labor was exempt.

For new construction, labor was exempt and materials taxable. Completely removing an old system and installing a new one counted as new construction. Rule 3.291 governed the work, and whether the contractor paid supplier tax or collected from the customer depended on whether the contract was lump-sum or separated.

What this means for you

The important distinctions were repair versus new construction, residential versus nonresidential property, and the contract's pricing form.

Common questions

Were commercial irrigation repairs taxable? Yes, labor and materials.

Was residential repair labor taxable? No; materials were taxable.

Was complete replacement new construction? Yes.

Citations and references

• 34 Tex. Admin. Code Rule 3.291 — contractors and underground irrigation systems

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9109L1130D08

Original ruling text

September 12, 1991

Dear ****:

Thank you for your recent letter regarding the taxability of water
irrigation systems.

You stated in your letter that your company subcontracts irrigation
companies for installation and service repair work. Your questions
and my response to each are restated below.

1. Are service repair calls on existing irrigation systems taxable?

RESPONSE: The total charge (labor and materials) is taxable to repair
non- residential property. Materials only are taxable to repair
residential property.

2. Are constructional revisions to an existing irrigation system
   taxable? RESPONSE: Same answer as #1.

3. Is irrigation installation (new construction) a taxable expense?

RESPONSE: Labor is exempt, materials are taxable under a contract
for new construction.

4. If an existing irrigation system is completely removed and a new
   irrigation system is installed, is this considered new construction
   or is it a revision and taxable?

RESPONSE: The work is considered new construction. The materials
charge is taxable for non-residential property. Materials are taxable
and labor is exempt for residential property.

5. Is there any difference in what is considered taxable and non
   taxable for residential vs. commercial properties?

RESPONSE: Under a contract for new construction, the answer is no.
Under a contract for repair/remodeling, the materials are taxable for
both types; however, the labor is exempt for residential work.

Rule 3.291 on Contractors covers the installation, repair or remodeling
of underground irrigation systems. The terms of a contract (lump-sum
or separated) determine if a contractor pays tax at the time of
purchase or collects the tax from a customer.

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 more information, you may call me
toll free at 1-800-531-5441, extension 5-0330. The regular number
is 512/463-4600, or write Tax Administration Division.

Sincerely,

Bettie U. Peterson
Tax Administration Division