How did Texas tax sales, rentals, and real-property installation of movable prefabricated buildings with or without axles and wheels?

Plain-English summary

The Comptroller classified the manufacturer's prefabricated buildings differently depending on their construction and use. None of the described units was certified as a manufactured home or industrialized building.

Units built with metal frames, axles, and tires were motor vehicles under the letter. Removing the axles and wheels and attaching the unit to a foundation did not change that identity while it remained reasonably movable. The seller provided the buyer with the documents needed to title the unit and pay motor-vehicle sales tax. Public-agency purchases displaying exempt tags and resale sales to licensed dealers were exempt on the stated terms.

Giving another party exclusive use of such a vehicle was a rental. The letter stated 1992 rental-tax rates of 10% for 1-to-30-day contracts and 6.25% for longer contracts, and required an exemption certificate for rentals to exempt entities.

Units built without axles and wheels were manufactured tangible personal property subject to limited sales tax. If the manufacturer incorporated a unit into realty, it became a contractor: under lump-sum billing, the contractor paid tax on incorporated materials and collected none from the customer; under separated billing, it could buy materials with a resale certificate and collect tax from the customer on them.

The letter applied the fixture tests from Hutchins v. Masterson & Street: annexation to realty, adaptation to the realty's use, and—most importantly—the annexing party's intent to make the item a permanent part of the property.

What this means for you

Prefabricated-building manufacturers

Do not rely only on whether wheels remain attached at delivery. Reasonable movability, the unit's original construction, and the intended permanence of installation all affected classification.

Lessors and dealers

Motor-vehicle rental rules differed from tangible-personal-property lease rules. The letter specifically warns that the two systems also had different exemptions.

Contractors

When the manufacturer installs the unit as realty, contract form determines the materials tax flow. Preserve clear lump-sum or separated terms.

Common questions

Did removing a unit's wheels automatically make it real property? No, not while it remained reasonably movable.

Who paid motor-vehicle sales tax on a sale? The purchaser paid it when transferring title; the seller supplied the needed documentation.

How were wheel-less units treated before real-property installation? As tangible personal property.

What was the most important fixture test? The intention to make the article a permanent accession to the realty.

Are the rental rates still current? The page reports the rates stated in the 1992 letter; verify present law.

Citations and references

• 34 Tex. Admin. Code Rule 3.306 (manufactured tangible personal property)
• 34 Tex. Admin. Code Rule 3.79 (motor-vehicle leases and lease-purchases)
• 34 Tex. Admin. Code Rule 3.294 (leases of tangible personal property)
• Hutchins v. Masterson & Street, 46 Tex. 551, 554 (1877) (fixture tests)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9201L1151D12

Original ruling text

January 24, 1992

Dear **:

Thank you for your letters regarding the taxability of certain
buildings manufactured by a Texas company. I hope you will accept
my apology for the delay in answering your question.

It is my understanding that none of the units you described are
certified by the Texas Department of Standards as manufactured
homes or industrialized buildings.

The units you described as taxable, and built with metal frames,
axles and tires, are motor vehicles and taxed under the Motor
Vehicle Sales and Use Tax Law. The unit does not lose its identity
if the axles and wheels are removed and the unit is affixed to a
foundation, as long as the unit can still be reasonably moved.

As the seller of a motor vehicle, your client (company A) is
not required to collect the motor vehicle sales tax. It is
responsible, however, for furnishing the documentation needed
(e.g., Seller, Donor or Trader's Affidavit and documents necessary
to title and register the unit) to the purchaser so that the
purchaser may pay the motor vehicle sales tax when transferring the
title. If a public agency purchases a motor vehicle and displays
exempt tags on the vehicle, the sale is exempt from the Motor
Vehicle Sales Tax. There is also no tax due on the sale for resale
of a motor vehicle to a licensed dealer.

When the manufacturer of a motor vehicle gives exclusive use of
the vehicle to another for any period of time, this is considered
a rental and the motor vehicle rental tax is due. A contract for
a period of time of 1-30 days is taxed at the rate of 10% a contract
for a period of more than 30 days is taxed at the rate of
6-1/4%. If the vehicle is rented to an exempt entity (e.g., a
public agency), company A must Secure an exemption certificate in
lieu of the tax. The manufacturer should obtain a motor vehicle
rental permit and collect the motor vehicle rental receipts tax.

In the scenario where the buildings are built without axles and
wheels, company A has manufactured tangible personal property
and limited sales tax applies (see enclosed Rule 3.306). If your
client incorporates these units into realty, then your client is
considered a contractor. In this situation, if company A bills
lump sum, then Company A must pay tax when purchasing the materials
to be incorporated into the building/unit and no tax collected
from the customer. If company A has separated billing, materials
may be purchased using a resale certificate and then tax collected
from company A's customer.

If your client ordinarily builds an office trailer (motor vehicle)
but before selling the unit incorporates it into realty, then your
client is considered a contractor, and the situation in the previous
paragraph applies.

You asked also what are the requirements to change the building
from tangible personal property to real property. The three tests
to be used in determining whether a particular article or structure
is an improvement to realty was set out in the leasing case
of Hutchins v. Masterson & Street, 46 Tex. 551(1877) as follows:

(1) Has there been a real or constructive annexation of the article
in question to realty?

(2) Was there a fitness or adaptation of such article to the uses
or purposes of the realty with which it is connected?

(3) Whether or not it was the intention of the party making the
annexation that the chattel in question should become a permanent
accession to the freehold? --this intention being inferable from the
nature of the article, the relation and situation of the parties
interested, the policy of the law in respect thereto, the mode of
annexation, and purpose or use for which the annexation is made.

And of these three tests, pre-eminence is to be given to the
question of intention to make the article a permanent accession to
the freehold, while the others are chiefly of value as evidence as
to this intention....Hutchins, supra at 554.

Please be aware that leases and lease/purchases of motor vehicles
as described in Motor Vehicle Sales Tax Rule 3.79 are taxed
differently from leases of tangible personal property in Limited
Sales Tax Rule 3.294. Copies are enclosed for your review. Please
be aware that motor vehicle sales tax has a different set of
exemptions than limited sales tax.

This opinion is based on the facts presented. If there are
additional or different facts, the opinion could change.

If you have any questions, please don't hesitate to write the Tax
Administration Division or call one of our tax specialists toll
free at 1-800-252-5555.

Sincerely,

Joan Hale
Tax Administration Division