How did Texas tax cathodic corrosion-protection systems installed on existing pipelines, well casings, tangible equipment, or new construction?

Plain-English summary

The letter confirmed that lump-sum and separated contract guidance for permanent real-property improvements still applied to new construction and residential work under Rule 3.291.

It changed earlier treatment of cathodic protection installed on existing nonresidential improvements. Since a January 1991 determination, installing a system to protect an existing underground pipeline or well casing was taxable real-property repair or remodeling, and the total customer charge was taxable under Rule 3.357 and TR-1222.

When the protected equipment remained tangible personal property and was not intended to become a permanent part of realty, the installer was a seller and installer of tangible personal property; the total charge was taxable.

When the installer acted as a subcontractor to a general contractor on new construction of a permanent real-property improvement, Rule 3.291 applied.

What this means for you

Installers should classify both the protected asset and the project stage. Existing nonresidential realty, freestanding tangible equipment, and new construction all produced taxable work or certificate mechanics through different rules.

Common questions

Was installation on an existing pipeline taxable? Yes, on the total charge. What about equipment remaining tangible personal property? The total seller-and-installer charge was taxable. What governed new-construction subcontracting? Rule 3.291.

Citations and references

• 34 Tex. Admin. Code Rule 3.291
• 34 Tex. Admin. Code Rule 3.357
• Texas Comptroller TR-1222

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9110L1142D14

Original ruling text

October 31, 1991

Dear *****:

You ask for confirmation of the information that you received from
auditor ** in June 1987 and Jo Ann Dieck in a letter dated February 4,
1988.

The information that you received from *** concerning lumpsum and
separated contracts to make permanent improvements to real property is correct
for new construction contracts or work performed on residential property. See
Rule 3.291-Contractors.

The information that you received from Jo Ann Dieck concerning
installation of cathodic protection systems has changed. In January 1991
installation of a cathodic protection system to protect an existing improvement
to real property such as an underground pipeline or well casing was determined
to be remodeling or repair of nonresidential real property. Please refer to the
enclosed copy of TR#1222. The total charge to the customer is taxable. You
should follow the guidelines for real property remodelers and repairmen given
in Rule 3.357.

You will be considered a seller and installer of tangible personal if you
install a cathodic protection system for equipment or other items that remain
tangible personal property and that are not intended to become a permanent part
of realty. The total charge to the customer is taxable.

If you install the cathodic protection system as a subcontractor, to a
general contractor as part of a contract for new construction of a permanent
improvement to realty, you will be subject to Rule 3.291-Contractors.

Please accept my apology for the delay in responding to your letter. I
have enclosed copies of several rules and TR#1222 for your review. Please feel
free to contact me if you have any additional questions. You may write me,
call toll free 1-800-252-5555, ext. 34685, from anywhere in the United States
or phone 512/463-4685.

This opinion is based on the facts that you presented. If there are
additional or different facts, this opinion may change.

Sincerely,

Julie Pesl
Tax Administration Division