Does a cable TV company owe Texas sales tax when it pre-wires a home for cable TV outlets?

Plain-English summary

A multiple-system cable TV operator asked the Comptroller how sales tax applies when it "pre-wires" a residence for cable TV outlets, whether it's dealing directly with a homeowner or with a contractor building or remodeling the home, and whether it's installing initial outlets or additional ones.

The Comptroller's answer: since this work is done on residential property, taxability turns entirely on how the contract is structured, not on who the customer is or whether the outlets are initial or additional.

• Lump-sum contract (one combined price for materials and labor): the cable company does not collect sales tax from the customer (whether contractor or homeowner). Instead, the cable company owes tax on its own cost of the wire.
• Separated contract with a homeowner (materials and labor billed separately): the cable company must collect sales tax from the homeowner on the charge for the wire. The labor charge is not taxable.
• Separated contract with a contractor: the cable company must collect sales tax on the wire charge from the contractor, unless the contractor gives the cable company a resale certificate instead of paying tax. A contractor may properly issue that resale certificate only if the contractor's own contract with his customer is also separated. The cable company isn't required to know or verify which type of contract the contractor is using with the contractor's customer — it just needs to either collect tax on the wire or accept a properly completed resale certificate in good faith.

This same lump-sum vs. separated analysis applies equally whether the job is wiring a brand-new home or adding outlets to an existing (remodeled) home, as long as the property is residential.

What this means for you

Cable and other utility installation companies

Your invoicing structure determines your tax treatment. If you bill a single lump-sum price for pre-wiring, you don't charge the customer sales tax — you pay tax yourself on the wire you buy. If you separately state your charge for wire and your charge for labor, you must collect sales tax on the wire charge (not the labor) from a homeowner, or from a contractor unless that contractor hands you a valid resale certificate.

Contractors buying pre-wiring services

If you're a contractor and you want to buy pre-wiring on a separated-contract basis without paying sales tax to the cable company, you can issue a resale certificate — but only if your own contract with your customer (the homeowner) is also a separated contract. If your deal with your customer is lump-sum, you should not issue a resale certificate for the wire.

Homeowners and accountants/tax professionals

Whether pre-wiring is taxable to you as a homeowner depends on how your cable provider or contractor structures the billing. On a lump-sum job you won't see sales tax on your bill; on a separated job, expect sales tax on the material (wire) charge but not on labor.

Common questions

Q: Does it matter whether the pre-wiring is for a new home or a remodel, or for the first cable outlet versus an additional one?
A: No. As long as the work is on residential property, the tax answer is the same regardless of whether it's initial wiring or additional outlets.

Q: Who pays the tax on a lump-sum pre-wiring job?
A: The cable company does — on its own cost of the wire. It does not collect sales tax from the customer on a lump-sum contract.

Q: I'm a cable company billing a contractor separately for wire. Do I always have to collect sales tax?
A: Not if the contractor gives you a properly completed resale certificate instead of paying tax. Whether that certificate is appropriate for the contractor to issue depends on whether the contractor's own contract with the homeowner is separated — but you are not responsible for verifying that; you simply collect tax on the wire or accept the resale certificate in good faith.

Q: Is labor ever taxable in these pre-wiring jobs?
A: No. Under a separated contract with a homeowner, the labor charge is not taxable — only the charge for the wire is.

Q: What rules define "lump-sum," "separated," "residential property," and good-faith acceptance of resale certificates?
A: The letter points to Rule 3.291 for the definitions of lump-sum and separated contracts, Rule 3.357 for the definition of residential property, and Rule 3.285 for good faith acceptance of resale certificates.

Citations and references

Rules cited in the letter:

• 34 Tex. Admin. Code Rule 3.291 (definitions of lump-sum and separated contracts)
• 34 Tex. Admin. Code Rule 3.357 (definition of residential property)
• 34 Tex. Admin. Code Rule 3.285 (good faith acceptance of resale certificates)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9211701L

Original ruling text

November 24, 1992

Dear **:

Thank you for your recent letter stating that you are a multiple-system
operator in the cable TV industry. You asked for advice as to the taxability of
each of the following circumstances that could occur in your business.

1. A contractor is in the process of building a new home and requests that we
   "pre-wire" for cable TV outlets? Should we charge the contractor sales tax for
   this prewiring?

2. A current or potential customer is in the process of building a new home and
   requests that we "pre-wire" for cable TV outlets. Should we charge the
   individual sales tax for this pre-wiring?

3. A current or potential customer is in the process of remodeling their home
   and request that we "pre-wire" for initial and/or additional cable TV outlets.
   Should we charge the individual sales tax for this pre-wiring of initial
   outlets? for additional outlets?

4. A contractor is in the process of remodeling a current or potential
   customer's home and requests that we "prewire" for initial and or additional
   cable TV outlets.

Should we charge the contractor sales tax for this prewiring of initial
outlets? for additional outlets?

Response: Since this is a residential facility where the prewiring is being
done, the taxability of the job will depend on the type of contract you use. If
your contract with your customer (either contractor or homeowner) is lump sum,
you will not collect sales tax from the customer. You owe tax on the cost of
the wire.

If your contract with the homeowner is a separated contract, you must collect
sales tax from the homeowner on your charge for the wire. The charge for labor
is not taxable.

If your contract is with the contractor and is separated, you must collect
sales tax from the contractor on your charge for wire unless the contractor
provides you with a resale certificate in lieu of tax. The contractor may give
you a resale certificate in lieu of tax if the contractor's contract with his
customer is also separated. It is not your responsibility to know the type of
contract used by the contractor. You should either collect sales tax on the
charge for wire or accept a properly completed resale certificate in lieu of
tax.

As long as the work is on residential property, the answer will be the same
whether the job is for initial wiring or adding additional outlets.

See Rule 3.291 enclosed for the definition of lump-sum and separated contracts,
Rule 3.357 for the definition of residential property, and Rule 3.285 on good
faith acceptance of resale certificates.

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

If you have any questions or need more information, you may call me toll free
at 1-800-531-5441, 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