How is Texas sales/use tax applied to three separate vendor invoices: a used scale and scale house, a new water well drilling job, and converting an existing tank into a silo?

Plain-English summary

This 1992 letter is not a single-issue ruling -- it answers a taxpayer's questions about three separate invoices from three different vendors, all billed to one of the taxpayer's clients. The stub's inherited title, "Silo — Made From Existing Tank On Customer's Property," only reflects the third of these three issues; the actual letter also addresses a used scale/scale house sale and a new water well drilling job. The summary below covers all three, since that is what the ruling text actually contains.

Company A (used scale and scale house): Tax was properly charged on this invoice because both the used scale and the shop-made scale house are tangible personal property. There is no evidence the seller performed installation extensive enough to be considered an improvement to real property. The Comptroller specifically notes that sitting the scale/scale house on a concrete slab and anchor-bolting it down does not convert it into realty -- the slab itself might be an improvement, but items merely bolted to a slab are not.

Company B (water well drilling): Drilling a new water well and installing casing is new construction labor, which is not taxable in Texas. However, an invoice does not control the tax outcome if a written contract exists -- the contract governs instead. Assuming no written contract exists (as the letter presumes from the facts given), the materials incorporated into the well (the steel casing and casing set shoe) are taxable to the purchaser/property owner, while the labor itself is not taxed. A separately stated cementing charge that is labor-only is not taxed, but if that charge bundles in materials, the answer would change.

Company C (tank converted into silo): The bid narrative shows the silo was made by converting an existing "large tank" already on the customer's property. The Comptroller notes the existing tank is either an improvement to realty or remains tangible personal property -- but either way, the full charge to convert it into a silo is taxable: as nonresidential remodeling if the tank was already realty, or as fabrication/processing of tangible personal property if it was not. The letter adds that silos used in asphalt or aggregate plants are generally treated as movable equipment, and anchoring the silo to a concrete slab with bolts does not make it an improvement to realty, echoing the Company A reasoning.

What this means for you

Businesses buying equipment or construction services

Whether an item is "attached" to a concrete slab by anchor bolts is not, by itself, enough to convert tangible personal property into real property improvements. Two separate items in this letter (the scale house and the silo) reach the same conclusion on this point -- bolting equipment to a slab keeps it taxable as tangible personal property, even though the slab itself may be a realty improvement.

Contractors and well drillers

New construction labor -- like drilling a new water well -- is not taxed, but materials incorporated into the job (casing, casing shoes) are taxable to the purchaser unless a written contract shifts that responsibility. Whether you have a written contract matters: contracts control over invoices when both exist, so contractors should be careful about how invoices are worded when no formal contract governs the job.

Accountants and tax professionals reviewing mixed invoices

This letter is a useful reminder that a single request-for-ruling letter can bundle multiple, factually distinct transactions, each requiring its own analysis. Don't assume a title referencing only one topic (here, "silo") reflects the full scope of a ruling -- read the whole letter before relying on it.

Common questions

Q: Does bolting an item to a concrete slab make it part of the real property?
A: No. The letter states this twice -- for the scale/scale house and for the silo -- that anchor-bolting equipment to a concrete slab does not, by itself, cause the equipment to become an improvement to realty, even though the slab itself might be.

Q: Is labor to drill a new water well taxable?
A: No, new construction labor (including drilling and casing installation) is not taxed. But the materials used, like steel casing and a casing set shoe, are taxable to the purchaser, assuming there's no written contract shifting that liability.

Q: Is converting an existing tank into a silo taxable?
A: Yes, either way. If the original tank is realty, the conversion charge is taxed as nonresidential remodeling. If the tank is tangible personal property, the charge is taxed as fabricating/processing tangible personal property.

Q: What controls the tax treatment if there's a dispute between an invoice and a contract?
A: A written contract, if one exists, controls the tax responsibilities of the parties over what an invoice says. Only in the absence of a written contract do the invoices themselves control taxability.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9205015L

Original ruling text

May 7, 1992

Dear **:

I am responding to your letter questioning the application of tax on specific
invoices by different vendors selling to one of your clients. I have reviewed
the invoices and the responses below reflect the response to your inquiry.

COMPANY A Invoice #3510:

This invoice is for the sale of a used scale and shop-made scale house, both
are items of tangible personal property. Tax was properly added to this invoice
and is due. The payment authorization also stipulates the purchase of scale.
There is no indication that the seller provided any installation, specifically
installation significant enough to be considered improving realty.

Additionally, the fact that the scale and/or the scale house is sitting on a
concrete slab and anchor bolted to the slab does not cause these items to
become improvements to realty. The concrete slab may be an improvement, but
other items that may be bolted to a slab are not improvements to realty.

COMPANY B Invoice #015846:

The drilling of a new water well and installing casing in a new water well is
new construction labor. New construction labor is not taxed. The invoice
enclosed indicates that the labor for drilling, etc. is separately stated from
the charge for materials.

However, an invoice does not control the taxability when a written contract
exists. If there is a written contract, the contract will control the tax
responsibilities of the parties. If there is no written contract, the invoices
control the taxability. Based upon this invoice and my presumption that there
is no written contract, the materials that are incorporated into the well are
taxable to the purchaser/property owner. The new construction labor portion
should not be taxed.

The cementing charge on this invoice appears to be a labor only charge. If so,
it is not taxed.

Based upon the information provided, the steel casing charge of $**
and the casing set shoe charge of $** are taxable. The other
charges are for new construction labor. However, if the cementing charge on
Invoice #015846 includes both materials and labor, this response will change.

COMPANY C Invoice #6Z430:

The bid narrative included with this invoice indicates that the silo is made
from an existing "large tank" on the customer's property. The existing tank is
either an improvement to realty or retains its identity as tangible personal
property. Either way, the total charge to change the existing large tank into a
silo is taxed. If the customer's tank is existing realty, the charge is for
nonresidential remodeling. If the customer's tank is tangible personal
property, the charge is for fabricating/processing tangible personal property.

Silos that are part of asphalt plants or other aggregate plants are moveable
equipment. The fact that the silo/equipment is anchored to a concrete slab by
the anchor bolts does not cause the silo to become an improvement to realty.
See the comments for COMPANY A.

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.

Tax Administration Division