Is Texas sales tax due on mileage or travel charges billed alongside taxable pay-telephone repair, installation, or maintenance services?

Plain-English summary

A business wrote to the Comptroller's office asking how sales tax applies to a list of services it provides to the pay telephone industry, including consulting, service contracts, programming, installation, on-call maintenance, sale of repair parts, and mileage charges. The Comptroller responded to each item.

Consulting services are not taxable if they consist of the consultant's own expert or professional opinion and are unrelated to sales of taxable items. But consulting that is really an information service — such as telling a customer where to get the best price on a product — is taxable as an information service.

Service contracts covering monitoring and servicing of pay phones are taxable: labor to maintain or repair pay telephones, including labor to monitor the phones, is taxable, and charges for materials used are taxable as well. Programming pay phones remotely from an office computer is taxable.

Installation of pay phones is addressed specifically: the term "install" means to set up for use, and installation charges are not automatically taxable on their own. However, if the seller of an item also installs it, the installation charge becomes part of the taxable sales price. Installing a pay phone may also involve remodeling improvements to real property — for example, drilling holes in buildings and running wire through walls — and remodeling of nonresidential real property is itself a taxable service. The Comptroller referenced Rule 3.357 on this point.

As-needed maintenance of pay phones (billed per service call or hourly) is taxable, because pay telephones generally keep their character as tangible personal property after installation, so maintenance charges on them are subject to sales tax. Sale of repair parts for pay phones is taxable.

Finally, on the specific question this ruling is titled for: mileage charges billed for any of the above services are taxable if connected to a sale of a taxable item, regardless of whether the mileage is broken out as a separate line item or bundled into the other charges.

What this means for you

Businesses servicing pay telephones (or similar tangible personal property)

If you charge for labor to maintain, repair, monitor, or program equipment, expect that labor charge to be taxable, along with any materials used. Mileage or travel charges tied to that taxable work are also taxable — separating the mileage out on the invoice does not make it exempt.

Businesses installing equipment they also sell

If you sell an item and also install it, the installation charge is folded into the taxable sales price. Installation work that involves altering real property (drilling, running wiring, etc.) can independently qualify as a taxable remodeling service to nonresidential real property.

Businesses offering consulting or advisory services

Pure expert/professional opinion consulting, unconnected to a sale of taxable items, is not taxable. But if the "consulting" amounts to telling customers where to find the best price or product, that is taxable as an information service.

Common questions

Q: Are mileage or travel charges taxable in Texas?
A: When they are connected to the sale of a taxable item or service, yes — and it does not matter whether the mileage is billed as its own line item or combined with other charges.

Q: Is labor to repair or maintain pay telephones taxable?
A: Yes. Labor to maintain or repair pay telephones, including monitoring labor, is taxable, and so are the materials used.

Q: Is installing a pay phone automatically taxable?
A: Not automatically — but if the seller of the phone also installs it, the installation charge becomes part of the taxable sales price. Installation work that alters real property (like running wiring through walls) can also be a taxable remodeling service.

Q: Is all consulting related to pay phones taxable?
A: No. Consulting that reflects the consultant's own expert opinion and is not tied to a sale of taxable items is not taxable. Consulting that functions as an information service (e.g., telling a customer the best price available) is taxable.

Citations and references

No specific statutes are cited in the text of this letter, though it references Rule 3.357 regarding remodeling of nonresidential real property.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9412L1329E02

Original ruling text

December 8, 1994

Dear **:

Thank you for your recent letter regarding the tax treatment of services
provided to the pay telephone industry. Each service is restated with response
below.

• Consulting on pay phones and pay phone services - i.e. which manufacturer of
  pay phones has the best phone for their use or which long distance service has
  the best prices.

Response: Consultation services central to which are the expert or professional
opinions of the consultant are not taxable if they are not related to sales of
taxable items. Consultation services more in the nature of an information
service, such as where to get the best price on a product, are taxable as
information services.

• Service contract on phones - monitoring and service of their pay phones -
  This may include parts and labor or labor only.

Response: Labor to maintain or repair pay telephones is taxable. This would
include labor monitor the phones. Charges for materials are taxable as well.

• Programming of pay phones from office via computer

Response: Taxable.

• Actual installation of pay phones

Response: The term install means to set up for use. Charges for installation
are not in and of themselves taxable. However, charges for installation of an
item by the seller of the item are considered to be part of the sales price and
taxed as such. Labor to set up a pay phone for use may also entail remodeling
improvements to real property i.e. drilling holes in buildings and running wire
within walls. Remodeling nonresidential improvements to realty is a taxable
service and is subject to sales tax. I am enclosing a copy of Rule 3.357 for
your reference.

• Maintenance of pay phones on an as needed basis - per service call or
  hourly.

Response: Charges for labor to maintain tangible personal property are subject
to sales tax. Pay telephones generally retain their character as tangible
property after installation and so charges for maintenance on these items is
subject to sales tax.

• Sale of repair parts for pay phones

Response: Taxable

• Mileage charges charged for any of the above if not charged separate from
  the other charges

Response: Mileage charges connected to a sale of a taxable item are taxable
whether the charges are separated or not.

This Opinion is rendered based on the facts you submitted. Other facts, though
similar, may yield different results.

You may call me toll free at 1-800-531-5441, ext. 3-4680. The direct line is
512/463-4680. You may also write to Tax Administration, Comptroller of Public
Accounts.

Sincerely,

Al Van Allen
Tax Administration Division

NOTE: Previous Accession Number 9412804L