How did Texas tax cable installed in new construction, existing nonresidential property, and federal or exempt-entity projects?

Plain-English summary

Cable installed in a building's foundation, floors, walls, or ceiling became part of the real property. During initial construction, installation labor was nontaxable. Under a lump-sum construction contract, the contractor consumed the taxable cable and materials and did not charge the customer tax. Under a separated contract, the materials were resold and the contractor collected tax on their agreed price.

Installing cable in existing nonresidential real property was taxable remodeling, so the total materials-and-labor charge was taxable. The requester could give its installer a resale certificate for the taxable remodeling service or for materials under a separated new-construction contract and then collect the applicable tax from its own customer.

For federal property, materials actually transferred to the federal government could be bought for resale and the government charge was nontaxable. New-construction materials qualified for that resale treatment only under a separated contract; a lump-sum contractor remained the consumer. The letter also said items used to complete a contract for a school district or nonprofit hospital qualified for exemption.

The requester did not need a new sales-tax permit merely because it acted as a contractor, so long as ownership had not changed and no new location had opened.

What this means for you

Cable contractors should identify whether the work is initial construction or remodeling and whether the price is lump sum or separated. Customer identity did not erase those contract-form distinctions.

Common questions

Was new-construction labor taxable? No. Was cable work in existing nonresidential property taxable? Yes, on the total charge. Could federal-project materials be bought tax-free? The letter allowed resale treatment for transferred materials, with a separated-contract requirement for new construction. Was a new permit required? Not on the stated unchanged-ownership and location facts.

Citations and references

• 34 Tex. Admin. Code Rule 3.291
• 34 Tex. Admin. Code Rule 3.357

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9112L1149F10

Original ruling text

December 30, 1991

Dear ****:

Please accept my apology for the delay in responding to your letter
concerning *** services.

Cable installed in the foundation, floors, walls or ceiling of a building
or other permanent improvement to real property becomes a part of the realty
also. *** will be considered a subcontractor to a general contractor if
the cable is installed during construction of the structure. Rule
3.291-Contractors will apply.

If the cable is installed during initial construction, the installation
labor will not be taxable. The cable and other materials are subject to tax.
Under the terms of a lump-sum construction contract, the contractor is the
consumer of the materials. No tax is due from the customer. If the material
and labor charges are separately stated to the customer, then the materials are
considered resold to the customer. Tax must be collected on the agreed
contract price of the materials.

Cable installation in existing nonresidential real property is real
property remodeling. The total charge to the customer for materials and labor
is taxable. See Rule 3.357-Real Property Repair and Remodeling.

* may issue a resale certificate to the cable installer for
either the total charge for real property remodeling services or for the
materials under a separated new construction contract. * will be
responsible for collecting tax on these charges, if it is due, from ***'s
customers.

If the property remodeled belongs to the federal government the materials
actually transferred to the federal government may be purchased tax free for
resale. The charge to the government is not taxable. If the materials are
installed in government property as part of a new construction contract, the
materials may be purchased tax free for resale only if the contract is
separated between material and labor charges. Materials installed under a
lump-sum new construction contract are not resold. The contractor is the
consumer of the materials and must pay tax at the time of purchase.

In addition to the rules mentioned previously, I have enclosed guidelines
explaining the changes in the tax law that became effective October 1, 1991.
If the customer is a school district or nonprofit hospital, then the items used
to complete the contract will qualify for exemption.

Our records indicate that *** holds Texas sales and use tax permit

-------. It is not necessary to apply for a new permit as a contractor

provided the ownership has not changed and no new locations have been opened.

This opinion is based on the facts that 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 about
my response. You may write me, call toll free 1-800-252-5555, ext. 34685, from
anywhere in the United States or phone (512) 463-4685.

Sincerely,

Julie Pesl
Tax Administration Division