Did a third-party installer have to charge Texas sales tax for mounting neon channel-letter signs on a building?

Plain-English summary

The installer mounted individually illuminated channel letters to building exteriors for an out-of-state sign manufacturer, which billed the business customer for the total job.

For signs installed on an existing nonresidential building, the installer could accept a properly completed resale certificate from the manufacturer instead of tax. That installation was taxable nonresidential remodeling in the manufacturer-customer transaction.

If the signs were installed as part of the building's new construction, the installation labor was not taxable. In either case, the installer owed tax on equipment and supplies used to install the letters.

What this means for you

The tax treatment depended on both the installer's third-party role and whether the building was existing or newly constructed. The installer still consumed its own installation equipment and supplies.

Common questions

Could the installer accept a resale certificate? Yes, for installation on an existing nonresidential building if the manufacturer supplied a valid certificate.

Was labor taxable in new construction? No.

Did the installer owe tax on its equipment and supplies? Yes, in either situation.

Citations and references

The letter cited no specific statute or rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9203L1166F08

Original ruling text

March 12, 1992

Dear ***:

I am writing in response to your letter questioning whether sales
tax should be charged on installation of channel letters.

You explained channel letters are individually mounted to the
outside of a building advertising a business name and are
internally illuminated with neon. Size of the lettering varies
with each application; and, in each case, the letters are mounted
by drilling small holes into the building. Holes are also drilled
for the electrical hook up. You also stated that removal causes
minimal damage to the building and that reinstallation at another
location is possible.

In your business you install channel letters that are manufactured
in another state. The customer/business owner contracts with the
out-of-state manufacturer, and the manufacturer contracts you to
provide the installation. I called your business and spoke to
**, who explained that you bill out-of-state manufacturer for
the installation charge. The manufacturer bills the customer for
the total amount. You asked whether you must charge the
manufacturer tax on the installation you provide.

Based upon the information given, your company is providing third
party installation. If you are installing signs on an existing
nonresidential building, you may accept a properly completed and
valid resale certificate in lieu of tax from the manufacturer.
Installing signs on an existing improvement to realty is taxed as
nonresidential remodeling. If you are installing signs as part of
new construction of the building, the charge for installation
labor is not taxable. In either case, your company owes tax on
equipment and supplies used to install the lettering.

This opinion is based on the facts presented. If there are additional
or different facts, the opinion may change. You may also write to Tax
Administration Division, Comptroller of Public Accounts.

Sincerely,

Tax Administration Division