Is labor to power-wash and acid-clean hotel air conditioning units taxable in Texas, or is it exempt real property maintenance?

Subject

Air Conditioning Unit — Power Washing/Acid Cleaning — Real Property Services Vs. Maintenance Or Repair Or Restoration Of Real Property

Plain-English summary

A vendor asked the Comptroller whether preventive-maintenance cleaning contracts — power washing and acid cleaning — for air conditioning units at hotel and motel chains were taxable.

The answer turns on a basic real-property-vs-tangible-personal-property distinction: labor to maintain real property is not taxable, while labor to repair or maintain tangible personal property is taxable. The letter explains that free-standing equipment is generally tangible personal property, and even equipment that is bolted down stays tangible personal property if it could be removed without damaging either the equipment or the building. Only equipment so large or heavy that moving it is impractical, and that the installer intended to be a permanent part of the building, counts as real property.

Applying that test, the ruling draws a clear line based on how the unit is installed:

• Units installed into a window opening are tangible personal property, so the total charge to repair or maintain them is taxable (citing Rule 3.292, covering repair, remodeling, maintenance, and restoration of tangible personal property).
• Units installed into the wall of the building are treated as a permanent improvement to realty, so labor to "maintain" those units is not taxable (citing Rule 3.357, covering real property repair and remodeling).

So the same cleaning service can be taxable or exempt depending on whether the specific unit sits in a window frame or is built into the wall itself.

What this means for you

Hotel and motel operators

Before assuming your AC-unit cleaning contract is or isn't taxable, check how each unit is physically installed. Window-mounted units are treated as equipment (taxable cleaning/maintenance labor); units set into the wall as a permanent installation are treated as part of the building (exempt maintenance labor). A single property with a mix of installation types could have some units taxable and others not.

Cleaning and maintenance contractors

When invoicing for AC unit power washing or acid cleaning, you may need to charge sales tax on some units and not others, depending on installation type. Ask or document whether each unit is window-mounted or built into the wall, since that drives the tax treatment of your labor charge.

Accountants and tax professionals

The ruling is a useful illustration of the real-property/TPP line under Rule 3.292 and Rule 3.357. The relevant test for a permanent improvement is a permanent attachment to real property such that removal would cause substantial damage to either the improvement or the property, combined with intent that the item become a permanent part of the realty. Window units fail that test (removable without damage); wall-installed units, as described in this letter, satisfy it.

Common questions

Q: Is cleaning an air conditioning unit at a hotel always taxable?
A: No. It depends on how the specific unit is installed. Window-installed units are taxable as tangible personal property repair/maintenance; wall-installed units are treated as a permanent real property improvement, so the maintenance labor is not taxable.

Q: What makes a wall-installed unit different from a window unit for tax purposes?
A: The wall-installed unit is treated as a permanent attachment to the building — removing it would cause substantial damage to the unit or the building, and it's intended to stay in place. A window unit can typically be removed without that kind of damage, so it stays classified as equipment.

Q: Does it matter that the service is preventive maintenance rather than a repair?
A: No. The ruling treats "repair or maintain" the same way — the taxability turns on whether the underlying equipment is tangible personal property or real property, not on whether the specific service is a repair versus routine maintenance.

Q: Where are the definitions for "maintenance" of real property found?
A: Rule 3.357, section (a)(3) defines "maintenance" as it relates to real property, and section (c)(2) of that rule lists the responsibilities of a person performing real property maintenance.

Q: Can other hotel chains rely on this exact letter?
A: Not directly. STAR letter rulings are based on the specific facts presented and are binding only for the taxpayer who received them (see 34 Tex. Admin. Code Rules 3.1 and 3.10). Other businesses can use it as guidance on how the Comptroller reasons about similar equipment, but should confirm treatment for their own specific installations.

Citations and references

• 34 Tex. Admin. Code § 3.292 (Repair, Remodeling, Maintenance, and Restoration of Tangible Personal Property)
• 34 Tex. Admin. Code § 3.357 (Real Property Repair and Remodeling), including subsection (a)(3) (definition of "maintenance") and subsection (c)(2) (responsibilities of a person performing real property maintenance)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9208L1190C11

Original ruling text

August 12, 1992

Dear ***:

Thank you for your recent letter regarding the taxability of contracts for the
preventive maintenance cleaning of through-the-wall air conditioning units for
hotel and motel chains.

A charge for labor to maintain real property is not taxable, while a charge to
repair or maintain tangible personal property is taxable.

Generally, free-standing equipment is tangible personal property. Equipment
which is bolted down, but which could be removed without damage to either the
equipment or the realty will be considered to be tangible personal property.
Equipment which is of such size or weight that it is not practical to move will
be considered as realty if the intent of the owner is for the installation to
be permanent. Therefore, units installed into window openings are considered
tangible personal property and the total charge to repair or maintain these
units is taxable. See the enclosed Rule 3.292, Repair, Remodeling,
Maintenance, and Restoration of Tangible Personal Property.

To be considered a permanent improvement, there must be a permanent attachment
to the real property so that the removal of the improvement would cause either
substantial damage to the improvement or the real property. The improvement
must be adapted to the apparent use of the realty and it must be the intent of
the provider that the improvement become a permanent part of the realty. Air
conditioning units installed in the wall of a building are considered a
permanent improvement to realty and labor to "maintain" those units is not
taxable.

"Maintenance", as it relates to real property, is defined in section (a) (3) of
the enclosed Rule 3.357, Real Property Repair and Remodeling. Section (c)(2)
of this rule lists the responsibilities of a person performing maintenance on
real property.

This opinion is based on the facts presented. Other facts though similar may
provide a different result.

If you have other questions or need more information, you may call me at
1-800-252-5555, extension 3-4502. The regular number is 512/463-4600. You may
also write to Tax Administration Division at the above address.

Sincerely,

Gilbert Zamora
Tax Administration Division