Ezel / Tax Rulings / TX
TX 9201L1157C12 Sales and/or Use Tax (State,Local,MTA) 1992-01-30

Was excavating and reinforcing an existing factory foundation for new heavy equipment treated as new construction or taxable remodeling?

Short answer: It was remodeling, not new construction, because the work upgraded an existing structure. Since the work was performed under a lump-sum contract, the Comptroller said the total charge was taxable.

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This page answers the general question as of 1992. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1992
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is an official Texas Comptroller of Public Accounts letter published on the State Tax Automated Research (STAR) system. Letters on STAR can be the basis of a detrimental reliance claim only for the taxpayer to whom the letter was directly issued (see 34 Tex. Admin. Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded. Taxpayer-identifying details are redacted. This summary is informational only and is not legal or tax advice. Consult a licensed Texas tax professional about your specific situation.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page) is the authoritative source for any reliance.

Plain-English summary

The Comptroller treated work that strengthened an existing manufacturing-facility foundation for a new machine as remodeling, not new construction.

The contractor excavated 8 to 9 inches of the existing foundation, removed additional dirt to a depth of 5 to 6 feet, and installed rebar and concrete so the foundation could support the new equipment. Because the contract upgraded the existing structure, it met the letter's definition of remodeling.

The work was performed on a lump-sum basis, and the letter said the total charge was taxable.

What this means for you

Manufacturers

Installing new machinery does not automatically make the related real-property work new construction. Upgrading an existing foundation to handle the equipment was remodeling on these facts.

Contractors and accountants

Identify whether the project creates a new structure or upgrades an existing one. The letter tied the taxable treatment to both the remodeling classification and the lump-sum contract.

Common questions

Was the stronger foundation treated as new construction? No.

Why was it remodeling? The work upgraded an existing structure rather than constructing a new one.

Was only the material portion taxable? No. The letter said the total lump-sum charge was taxable.

Citations and references

The letter does not cite a specific statute or administrative rule.

Source

Original ruling text

January 30, 1992

Dear **:

Thank you for your recent letter to Jo Ann Dieck contending that
certain functions performed on realty should be treated as new
construction and not remodeling. I have been asked to respond.
Your facts are restated with response below.

The taxpayer is a manufacturing operation in Texas. Sometime
after January 1, 1988, the taxpayer acquired a new piece of
manufacturing equipment. For various reasons, the equipment
demanded a foundation strength greater than that of the existing
foundation. The taxpayer engaged a contractor to excavate
an area of the taxpayer's existing foundation (8 to 9 inches
deep), excavate additional dirt to a depth of 5 to 6 feet,
then install rebar and concrete. The resulting foundation
could support the new machine.

Response: The work meets the definition of remodeling in that
the contract called for the upgrading of the existing structure.
Since the work was done on a lump sum basis, the total charge is
subject to tax.

This opinion is based on the facts you presented. Other facts,
though similar, may yield different results.

If you have questions or need more information, please call or
write. You may reach me by calling toll free, (800) 531-5441.
My direct line number is (512) 463-4680. The number for FAX
transmissions is (512) 475-0900. You may write me in care of
Tax Administration Division.

Sincerely,

Al Van Allen
Tax Administration Division

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