Is a service that cuts lines in a customer's semiconductor chip and creates new connections, without adding or removing any material, subject to Texas sales tax?

Plain-English summary

A business asked the Comptroller whether its chip-repair service was taxable. Clients would bring in semiconductor chips that weren't performing as desired, and the business would cut lines in the chip and form new connections at locations the client specified. The client would then take the same chip away, sometimes returning multiple times to try different connection configurations until the chip worked to their satisfaction. Critically, the taxpayer noted there was "no tangible change to the clients property because of the work we do" — meaning the modification, while functionally real, wasn't visibly or physically obvious.

The Comptroller held that this service is taxable. Because the work involves cutting existing lines and creating new connections on the customer's own property, it constitutes repair or remodeling of tangible personal property under 34 Tex. Admin. Code Rule 3.292, which governs the taxation of repair, remodeling, maintenance, and restoration of tangible personal property in Texas. The absence of a visually obvious change did not matter — the chip was physically altered (lines were cut, new connections made), which is enough to bring the service within the scope of taxable repair/remodeling services, regardless of whether the fix worked or the client had to return for further attempts.

What this means for you

Electronics repair and rework businesses

If your service involves physically altering a customer's device to try to fix or modify its function — even something as small as cutting a trace and reconnecting it — that service is generally taxable as repair or remodeling of tangible personal property in Texas. It doesn't matter that the change isn't visually apparent to the naked eye; what matters is that the property itself was physically modified in an attempt to change how it works.

Semiconductor and PCB rework shops

Chip-level or board-level rework services (cutting lines, bodging new connections, "green wire" fixes) fall squarely under Rule 3.292's repair/remodeling category. You should be charging and collecting Texas sales tax on these services unless another specific exemption applies to your customer or the transaction.

Accountants and tax professionals advising tech clients

This letter is a useful, narrow example of how broadly Texas defines "repair" — a service that leaves no visible mark and may not even successfully fix the item is still taxable, because the taxability turns on the nature of the work performed (altering tangible personal property), not on the outcome or visibility of the result.

Common questions

Q: Does it matter that the chip repair didn't leave any visible or tangible change?
A: No. The Comptroller ruled the service taxable anyway — cutting lines and making new connections is repair/remodeling of tangible personal property under Rule 3.292, regardless of whether the change is visually apparent.

Q: What if the client has to come back multiple times because the fix doesn't work the first time?
A: The ruling doesn't distinguish based on success or number of attempts. Each instance of cutting lines and making new connections on the client's chip is part of the same taxable repair/remodeling service.

Q: What rule governs the taxability of this kind of service?
A: 34 Tex. Admin. Code Rule 3.292, which addresses repair, remodeling, maintenance, and restoration of tangible personal property.

Citations and references

• 34 Tex. Admin. Code § 3.292 (repair, remodeling, maintenance, and restoration of tangible personal property) — cited by the Comptroller as the basis for taxing the chip-modification service.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9406L1305D02

Original ruling text

June 8, 1994

Dear **:

Thank you for your letter dated June 3, 1994, regarding sale
tax as it applies to service provided by your business in
Texas.

FACTS: Clients bring us semiconductor chips that don't work
the way they want them to. They tell us where to cut lines
in the chip and where to make the new connection. They then
take the same chip away with them and hope they did the
correct fix. Sometimes the client will come back several
times with the same or similar chip and keep trying
different connections till the part works to their
satisfaction. There is no tangible change to the clients
property because of the work we do.

QUESTION: This is the only service we provide. Is our
service taxable?

RESPONSE: Work performed on the semiconductor chip is
taxable as either repair or remodeling of tangible personal
property. See enclosed Rule 3.292 on repair, remodeling,
maintenance, and restoration of tangible personal property.

This opinion is based on the facts presented. Different
facts, though similar, might lead to different answers. If
you have any questions or need more information, please
write or call me toll free at 1-800-531-5441, extension
50330, or 512-475-0330.

Sincerely,

Bettie Peterson
Tax Administration Division

NOTE: Previous Accession Number 9406407L