Were charges to install and remove rented telephone wire and radio equipment at drilling rigs taxable in Texas?

Plain-English summary

A company laid telephone wire on the ground between a telephone-company pedestal and a land drilling rig, rented that wire to customers, and removed it when the rig moved. The Comptroller said both installation and removal charges were taxable. Rule 3.294(d)(4) included setup, hookup, assembly, disassembly, erection, and dismantling labor charged under a rental agreement in the tax base.

The company also installed and removed radio equipment where no telephone pedestal was available. It supplied both the radio equipment and use of its licensed transmission frequency. The Comptroller characterized that arrangement as telecommunications service rather than a simple equipment rental, but reached the same result: installation and removal charges were taxable.

What this means for you

Equipment rental businesses

Labor billed for setting up or taking down rented property can be taxable as part of the rental charge, even when stated separately.

Communications providers

Providing equipment together with the right to use a licensed frequency may be treated as telecommunications service. The related setup and removal charges remained taxable here.

Common questions

Was installing the rented telephone wire taxable? Yes.

Was removing the wire when the rig moved taxable? Yes.

Was the radio arrangement merely an equipment rental? No. The Comptroller said its essence was telecommunications service because the company also provided use of its frequency license.

Did that different classification change the tax result? No. Radio installation and removal were still taxable.

Citations and references

• 34 Tex. Admin. Code Rule 3.294(d)(4) (rental-related setup, assembly, disassembly, erection, and dismantling labor)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9202L1163F03

Original ruling text

February 25, 1992

Dear ***:

Thank you for your recent letter which is restated in part with responses
below.

Facts: We install telephone wire for communications from the telephone
company pedestal to a land drilling rig. From our telephone conversation of
February 25, 1992, I obtained the following information:

A pedestal is a stub of telephone pole extending out of the ground
several feet onto which a customer may connect to purchase telephone service.

*** provides the wire to their customers as part of a rental of
tangible property rather than a telecommunications service. The wire is laid
on the ground rather than hung on poles or buried underground.

Question: Is the installation of this wire taxable? Is the removal of
the wire taxable when the drilling rig moves to a new location?

Response: Both charges are subject to tax. Rule 3.294(d)(4) explains that
charges in the rental agreement for labor such as set-up, hook-up, assembly
or disassembly, or erection and dismantling are subject to sales tax.

Facts: We also install radio equipment on land drilling rigs that are
used like a telephone when it is inaccessible to a telephone line pedestal.

Question: Is the installation and removal of the radio equipment taxable?

Response: Both charges are subject to tax. In our telephone conversation of
February 25, 1992, you explained that you provided not only the radio
equipment but the use of your license to transmit on a certain frequency. I
explained that the essence of this transaction is the provision of a
telecommunications service rather than simply a rental of tangible property.
However, the result is the same, the charges for installation and removal of
the radio equipment are 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) 531-54441. My direct line number
is (512) 463-4680. The number for FAX transmissions is (512) 475-0900. You
may write to me in care of Tax Administration Division.

Sincerely,

Al Van Allen
Tax Administration Division