How did Texas Letter Ruling 9205L1169C06 tax refinishing labor for residential built-ins, nonresidential built-ins, and free-standing appliances?

Plain-English summary

Refinishing labor was treated as repair or restoration labor, with taxability determined by the item being refinished.

Labor to refinish residential real-property improvements such as built-in countertops, cabinets, bathtubs, and sinks was nontaxable. The same work on nonresidential realty was taxable. Labor on free-standing stoves, refrigerators, freezers, furniture, and other tangible personal property was also taxable, including free-standing appliances located in residences.

For taxable nonresidential improvements and tangible-personal-property work, the total customer charge was taxed. The service provider paid tax on equipment, machinery, and other items used but not transferred to the customer, while transferred materials could be purchased for resale.

For residential improvements, contract form controlled materials treatment. Under a lump-sum contract, the provider paid suppliers' tax on equipment, consumables, and incorporated materials. Under a separated contract, it still paid tax on equipment and consumables but could issue a resale certificate for incorporated materials, then collect tax on the agreed contract price of those materials.

The letter also classified apartment buildings and similar multifamily dwellings as residential property.

What this means for you

The 1992 letter distinguished built-in improvements from free-standing personal property and residential from nonresidential realty. It also required residential contractors to apply different purchasing and collection rules to lump-sum and separated contracts.

Common questions

Was labor to refinish a built-in residential cabinet taxable? No under the letter.

What about the same cabinet in nonresidential realty? The refinishing labor was taxable.

Was refinishing a free-standing refrigerator in a home taxable? Yes.

Could a residential refinisher buy incorporated materials for resale? Under a separated contract, yes; under a lump-sum contract, the provider paid tax to the supplier.

Did the letter treat apartments as residential? Yes, along with similar multifamily dwellings.

Citations and references

The letter cited no specific statute or administrative 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/9205L1169C06

Original ruling text

May 6, 1992

Dear *****:

Thank you for your letter and the telephone call requesting clarification of
the taxability of the services your company provides. This letter is written as
verification of that conversation and also to assist you in explaining the
correct taxability of these items to your customers and competitors.

Refinishing labor is repair or restoration labor. The taxability of
refinishing/repair/restoration labor is determined by the type of item being
refinished. For example, the labor to refinish residential improvements to
realty such as built-in countertops, cabinets, bathtubs, and sinks is not
taxable labor. The labor to refinish built-in countertops, cabinets, bathtubs,
and sinks, etc. in nonresidential realty is taxable labor. And, the labor to
refinish free-standing appliances (stoves, refrigerators, freezers, etc.),
furniture, or other items of tangible personal property is taxable.

When your company is providing refinishing of nonresidential improvements to
realty and refinishing of tangible personal property including, but not limited
to, free-standing appliances in residences, the total charge is taxed. Your
company must also pay tax on equipment, machinery, and other items that are
used to provide these services, but that are not transferred to the customer.
The materials that are transferred to the customer during the performance of
the service may be purchased for resale.

When your company is providing refinishing of residential improvements to
realty, your tax responsibilities are determined by the type of contract you
have with your customer/property owner. If you have a lump-sum contract, your
company pays tax to your vendor on all equipment used, consumables used, and
materials that will be transferred/incorporated into your customer's realty. If
you have a separated contract, you must pay tax on equipment and consumables as
before, but you may issue a resale certificate to your suppliers in lieu of tax
on materials that will be transferred/incorporated into your customer's realty.
Your company must collect tax on the agreed contract price of the incorporated
materials. This tax must be remitted to the state.

The information contained in the April 19, 1990, response provided to your
company was and continues to be correct information. Also, apartment buildings
and similar multi-family dwellings are residential property.

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