Was the full price charged by contractors to refit a business's owned or leased space taxable in Texas?

Plain-English summary

A business that was not itself a construction company hired contractors to refit space it owned or leased. The Comptroller assumed the business was not an exempt organization listed in Tax Code §§ 151.309 or 151.310 and assumed “refitting” meant repair or remodeling.

Under those assumptions, the total contractor charge was taxable. The letter said repair or remodeling of machinery, equipment, or nonresidential real property was taxed on both labor and materials under Rules 3.292 and 3.357.

The Comptroller cautioned that different facts—or incorrect assumptions about the customer's exempt status or the nature of the work—could change the result.

What this means for you

Businesses improving occupied space

Calling work “refitting” did not create a separate tax category. The Comptroller treated it as repair or remodeling and taxed the entire charge on the facts assumed.

Accountants and tax professionals

Verify both assumptions before applying the letter: whether the customer is a qualifying exempt organization and whether the project is truly repair or remodeling rather than a different type of construction.

Common questions

Were both labor and materials taxable? Yes, for the assumed repair or remodeling of machinery, equipment, or nonresidential real property.

Did it matter whether the space was owned or leased? No distinction was drawn; the letter addressed both.

Did the ruling apply to exempt organizations? No. It expressly assumed the client was not within Tax Code §§ 151.309 or 151.310.

Citations and references

• Tex. Tax Code §§ 151.309 and 151.310 (exempt organizations excluded from the ruling's assumptions)
• 34 Tex. Admin. Code Rule 3.292 (repair and remodeling of tangible personal property)
• 34 Tex. Admin. Code Rule 3.357 (nonresidential 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/9202L1169G09

Original ruling text

February 28, 1992

Dear **:

Thank you for your recent letter asking for sales tax information on behalf of
your client.

You stated that your client is not in the construction business and hires
contractors to refit owned or leased space.

Response: This response is based on the assumption that your client is not one
of those organizations listed in Section 151.309 or 151.310 of the Texas Tax
Code. Since you state that the work being performed is "refitting" owned or
leased space, the further assumption is that the contractors are repairing or
remodeling.

The charge for repairing or remodeling machinery, equipment, or nonresidential
real property is taxable in total, both labor and materials. See the enclosed
rules 3.292 and 3.357.

This opinion is based on the facts presented. If there are additional or
different facts or if my assumptions are wrong, the opinion may change.

If you have any additional questions or need more information, you may call me
toll free at 1-800-252-5555, extension 3-4633. The regular number is
512/463-4633. You may also write to the Tax Administration Division.

Sincerely,

Wanda Hutcheson
Tax Administration Division