Is labor to repair major appliances taxable, and does a laundry/dry cleaner that owns and rents out uniforms, mops, or linens qualify for the manufacturing exemption on its washers, dryers, and repair parts?

Plain-English summary

A business that repairs major appliances asked the Comptroller how sales tax applies to its repair services, and the response covers several different situations:

General rule for appliance repair. Labor to repair tangible personal property is taxable. So is labor to repair nonresidential real property. Which category an appliance falls into depends on whether it's free-standing (simply plugged into an outlet — tangible personal property) or built-in (plumbed or wired into the building — real property). Either way, the repairman should collect tax unless the customer provides a valid resale or exemption certificate (see Rule 3.286(i)).

Restaurant kitchen equipment. Equipment restaurants and similar food retailers use to cook, mix, chop, or blend food or beverages they sell is exempt from sales tax, including repair parts and labor for that equipment. Kitchen equipment that becomes permanently attached to realty can still qualify for exemption if sold outright, or if installed under a contract that separately states labor and materials. But support equipment not used to actually process food or beverages — dishwashers, walk-in coolers, refrigerators — does not qualify.

Effective January 1, 1995, replacement parts and labor to repair qualifying kitchen equipment became exempt, as long as the equipment stays tangible personal property. If the equipment becomes part of the realty (e.g., a built-in oven) and is repaired under a lump-sum contract, the manufacturing exemption is lost and the job is treated as real property repair/remodeling (not exempt). But under a separated contract to repair equipment that has become realty, the replacement parts still qualify for exemption — only the labor is taxable. Support equipment not directly used to prepare food or beverages is fully taxable (parts and labor).

Laundries and dry cleaners renting out items they own. When a dry cleaner or laundry cleans items it owns — such as uniforms or mops — to prepare them for rental to others, that's considered processing tangible personal property for sale or rental. The washers and dryers used for that purpose qualify for the manufacturing exemption, and the labor and replacement parts to repair those appliances are exempt too, as long as the appliances remain tangible personal property. As with kitchen equipment, if the appliance becomes realty and is repaired under a lump-sum contract, the exemption is lost (and it's treated as real property repair); under a separated contract, only the replacement parts stay exempt.

Laundries and dry cleaners cleaning customers' own items. When a dry cleaner or laundry cleans items belonging to its customers, that's a personal service, not processing for rental. The washers and dryers used this way are not exempt, and neither is the labor or replacement parts to repair them — regardless of whether the equipment counts as tangible personal property or real property.

Businesses that do both. A business engaged in both rental (of its own items) and cleaning service (for customers' items) can claim the manufacturing exemption when it buys the appliances and for repair services — but its customer must then accrue tax on the fair market rental value of the appliances and the repair cost, for the time the appliances are used to provide the personal (taxable) service.

What this means for you

Appliance repair businesses

Don't assume all appliance repair is taxed the same way. Classify each appliance as tangible personal property (free-standing, plug-in) or real property (plumbed/wired-in) before determining how tax applies, and always collect tax unless you get a valid resale or exemption certificate from the customer.

Restaurants and food-service kitchen equipment

Equipment used to actually cook, mix, chop, or blend food/beverages you sell — and its repair parts and labor — can be exempt. But support equipment (dishwashers, walk-in coolers, refrigerators) that doesn't directly process food is fully taxable. If your cooking equipment becomes built-in realty, use a separated labor/materials contract to preserve the exemption on parts.

Laundries, dry cleaners, and uniform/linen rental companies

If you clean and rent out items you own (uniforms, mops, linens), your washers/dryers and their repair parts/labor can qualify for the manufacturing exemption — but only while the equipment remains tangible personal property, and only under a separated contract if it becomes attached to your building. If you're only cleaning customers' own items, that's a taxable personal service with no exemption on your equipment. If you do both, you can still claim the exemption on your equipment, but your rental customers must accrue tax on the rental value and repair cost for the portion of time the equipment served their (taxable) personal-service use.

Common questions

Q: Is labor to repair a major appliance always taxable?
A: Labor to repair tangible personal property is taxable, and so is labor to repair nonresidential real property — the appliance's classification (free-standing vs. built-in) determines which rule applies, but either way tax is due unless the customer provides a valid resale or exemption certificate.

Q: Is kitchen equipment at a restaurant exempt from sales tax?
A: Equipment used to cook, mix, chop, or blend food/beverages sold by the restaurant is exempt, including repair parts and labor — but support equipment like dishwashers or walk-in coolers is not.

Q: My dry cleaning business owns uniforms and mops that I rent to customers after cleaning them — are my washers and dryers exempt?
A: Yes, that activity is considered processing tangible personal property for rental, so the washers/dryers and their repair parts and labor qualify for the manufacturing exemption, as long as the equipment remains tangible personal property.

Q: What if my laundry business only cleans clothes that belong to my customers?
A: That's a personal service, not exempt processing. The washers/dryers used for that purpose, and their repair parts/labor, are not exempt.

Q: What happens if my exempt appliance becomes permanently attached to my building?
A: If it's then repaired under a lump-sum contract, the manufacturing exemption is lost and the job is treated as real property repair/remodeling. Under a separated contract (labor and materials stated separately), the replacement parts can still qualify for exemption, though the labor remains taxable.

Q: Can I rely on this letter for my own business?
A: No. This opinion is based on the facts presented to the Comptroller, and different facts could lead to a different result; it can only be relied on by the taxpayer it was issued to.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.286(i) (taxability of repair labor on tangible personal property vs. 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/9601931L

Original ruling text

January 25, 1996

Dear *****:

Thank you for your letter of January 15, 1996. You asked that we address the
taxability of your services to repair major appliances.

The work you described has many different tax consequences. I'll try to cover
the most typical situations. If you have questions about a specific job, feel
free to contact me at the address or phone number listed below.

In general, labor to repair either tangible personal property or nonresidential
real property is taxable. Major appliances may fall into either category
depending on whether the appliance is permanently attached to the building or
structure. Free standing appliances that are simply plugged into an electrical
outlet are tangible personal property. Built-in appliances that are plumbed or
wired into the building structure are real property. You should assume that
all of your repair jobs are taxable unless your customer provides you with a
valid resale or exemption certificate. Please refer to Section (i) of Rule
3.286.

Kitchen equipment used by restaurants and other similar food retailers to cook,
mix, chop, or blend the food or beverages they sell is exempt from sales tax.
The exemption also applies to repair parts and labor for qualifying equipment.
Kitchen equipment that becomes permanently attached to realty may qualify for
exemption if sold outright or installed under a contract separately stating
labor and materials. Support equipment (e.g.,dishwashers, walk-in coolers or
refrigerators) not used to process food or beverages does not qualify for this
exemption.

Effective January 1, 1995, replacement parts and labor to repair qualifying
kitchen equipment became exempt provided the equipment remains tangible
personal property. If the equipment becomes an improvement to realty (e.g.,
built-in oven) after installation and the equipment is repaired under a
lump-sum contract or billing, the manufacturing exemption is lost. Equipment
that becomes realty repaired under a lump-sum contract or billing constitutes
real property repair or remodeling. The manufacturing exemption does not apply
to real property repair and remodeling services. However, under a separated
contract or billing to repair equipment that becomes realty, the replacement
parts will qualify for exemption. The labor will be taxable.

You should collect tax on labor and replacement parts used to repair all
support equipment not directly used to prepare food or beverages.

When a dry cleaner or laundry cleans items it owns such as uniforms or mops in
preparation for rental to others, that activity is considered to be the
processing of tangible personal property for sale or rental. Washers and
dryers used for this purpose qualify for the manufacturing exemption. The
labor and replacement parts used to repair these appliances is also exempt
provided the appliances retain their identity as tangible personal property.
If the equipment becomes an improvement to realty after installation and the
equipment is repaired under a lump-sum contract or billing, the manufacturing
exemption is lost. Equipment that becomes realty repaired under a lump-sum
contract or billing constitutes real property repair or remodeling. The
manufacturing exemption does not apply to real property repair and remodeling
services. However, under a separated contract or billing to repair equipment
that becomes realty, the replacement parts will qualify for exemption. The
labor will be taxable.

When a dry cleaner or laundry cleans items belonging to it scustomers, the
business is providing a personal service. Washers and dryers used in this
manner are not exempt. The labor and replacement parts used to repair these
appliances are not exempt regardless of whether the equipment is tangible
personal property or real property.

A business engaged in both rental and service, as explained above, can claim
the manufacturing exemption when purchasing the appliances and for your repair
services. However, your customer is required to accrue tax on the fair market
rental value of the appliances and repair cost for the period of time the
appliances are used to provide the personal services.

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

You may call me toll free at 1-800-531-5441, ext. 5-0037. The direct line is
512/475-0037. You also may write to Sales Tax Policy Division, Comptroller of
Public Accounts.

Sincerely,

Lindey Osborne
Sales Tax Policy Division