Which industrial testing, inspection, training, heat-treating, and welding-information services were taxable in Texas?

Plain-English summary

An industrial company provided nondestructive metallurgical testing, welder testing and training, quality control, third-party inspection and expediting, AutoCAD-based tank inspection reporting, stress-relief and heat treatment, and welding-code information.

Testing, training, third-party inspection, and expediting were nontaxable. The provider had to pay tax on taxable items it used in those activities. AutoCAD reports or disks interpreting tank-crawler readings were also treated as nontaxable testing services.

Stress relieving or heat treating was taxable when heat readjusted a weakened material's molecular structure to restore its original strength. Depending on the property, that was repair of tangible personal property under Rule 3.292 or repair or restoration of real property under Rule 3.357.

Welding procedures and qualification materials appeared to be publications about industry or local code requirements and were taxable as sales of tangible personal property.

What this means for you

Testing laboratories and inspection firms

Separate diagnostic testing from work that physically restores property. The latter crossed into taxable repair in this letter.

Accountants and tax professionals

Delivery on paper or disk did not make the AutoCAD inspection result taxable because the Comptroller treated the overall activity as testing. Standalone welding-code publications received the opposite result.

Common questions

Were nondestructive testing services taxable? No.

Were training and third-party inspection taxable? No.

Was restorative heat treating taxable? Yes.

Were welding-code procedure and qualification publications taxable? Yes, as tangible personal property.

Citations and references

• 34 Tex. Admin. Code Rule 3.292(b) (repair of tangible personal property)
• 34 Tex. Admin. Code Rule 3.357(b) (real-property repair and remodeling)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9202L1158A01

Original ruling text

February 10, 1992

Dear ***:

Your letter concerning the taxability of the testing services provided by
your company has been assigned to me for review and response. I appreciate
your patience and apologize for the delay in responding.

*** is a nondestructive testing company providing industrial
metallurgical inspection and evaluation including, radiography, ultrasonics,
positive material identification, Brinell hardness, Gamma Scan, dye penetrant,
and magnetic particle inspection. ***** also provides stress
relieving/heat treating services, AutoCAD (computer data acquisition), welder
testing and training, quality control services, and third-party inspection and
expediting services.

The testing services, training, and third party inspection and expediting
services provided by *** are not subject to tax. ***** must
pay tax at the time of purchase on all taxable items used in providing these
services and training.

The AutoCAD, as you further described in our conversation of January 16,
1992, utilizes software that *** owns to interpret readings from
tank crawlers (equipment used to examine customer tanks for weak areas). The
customer is then given the results of the tank crawler's inspection in a hard
copy report or on disk or diskette for interpretation by or input into the
customer's mainframe computer. This is also a testing service and is not
subject to tax.

Stress relieving/heat treating services provided by ***, whereby
heat is used to readjust the molecular structure of a weakened material to
reestablish the original strength of that material, are taxable as the repair
of tangible personal property or the repair or restoration of real property
(depending on the type of property involved). I have enclosed copies of Rule
3.292, Repair, Remodeling, Maintenance, and Restoration of Tangible Personal
Property, and Rule 3.357, Real Property Repair and Remodeling. Section (b) of
these rules sets out the tax responsibilities of repairmen of real and personal
property.

Welding procedures and qualifications appear to be information (i.e., a
publication) on industry or area welding code requirements. This would be
taxable as the sale of tangible personal property.

This opinion is based on the facts presented. Other facts though similar
may provide a different result.

If you have other questions or need more information, you may call
512/463-4600, or 1-800-252-5555 from outside Austin. You may write to Tax
Administration Division.

Sincerely,

Gilbert Zamora
Tax Administration Division