Is a farm or ranch scale exempt from Texas sales tax, and does it matter whether the scale is free-standing or built into the ground or a building?

Subject

Scale — Farm Or Ranch Use — Free Standing Scales Vs. Attached To Real Property

Plain-English summary

A contractor who installs and repairs scales for farms and ranches asked the Comptroller how Texas sales tax applies. The answer turns on one key distinction: is the scale still tangible personal property, or has it become part of the real property?

Free-standing scales are tangible personal property. Used exclusively on a farm or ranch to produce agricultural products, or to market agricultural products the original producer made at a location the producer operates, they may qualify for the agricultural exemption under Texas Tax Code Section 151.316 and Rule 3.296. Repairing, restoring, or maintaining a free-standing scale that qualifies for that exemption is also exempt, under Texas Tax Code Section 3.3111(a) -- so the mileage, labor, and parts charges are not taxable.

Scales imbedded in a floor, driveway, or the ground become improvements to realty, and the tax treatment then depends on what kind of job it is and how the contract or billing is structured:

• New construction (installing a scale into the ground for a customer, or into a newly built building): labor is not taxable. Under a lump-sum contract, the contractor owes sales tax on the purchase price of the scale, and the lump-sum charge to the customer is not taxable. Under a separated contract (separate line items for the scale and the labor), the contractor is a seller of the scale and must charge the customer sales tax on the scale unless the customer provides a valid exemption certificate.
• Repair, remodel, or restore of an existing installation (e.g., installing a scale into the floor of an existing building, driveway, or road): this is nonresidential real property remodeling, which is taxable even on a farm or ranch -- the sales tax law does not exempt repair/remodel services to real property just because the realty is on a farm or ranch. A lump-sum charge is fully taxable. Under a separated contract, the customer may issue an exemption certificate for the scale itself, but not for the remodeling labor.

Separately, scale tickets used to record the weight of agricultural products may qualify for exemption under Texas Tax Code Section 151.316(a)(7) and (8). And local sales tax responsibilities vary by job-site location for new construction under a separated contract (see Rule 3.379(b)), while real property repair and remodeling services are taxed at the contractor's own local rate regardless of job-site location (see Section 3.357(e)).

What this means for you

Scale dealers, installers, and repair contractors

Track whether each job involves a free-standing scale (potentially exempt as farm/ranch equipment) or a scale being imbedded into a floor, driveway, or the ground (an improvement to realty). For realty-related work, also track whether it's new construction or repair/remodel of an existing installation, and whether your contract or billing is lump-sum or separated -- all of that changes who owes tax, on what amount, and at what rate.

Farm and ranch owners buying or repairing scales

A free-standing scale you use exclusively in producing or marketing your own agricultural products can qualify for the agricultural exemption, and repairs to that qualifying free-standing scale are also exempt. But once a scale is built into the ground, a driveway, or a building, repair and remodeling labor on it is taxable even though it's on a farm or ranch -- being on farm/ranch property does not exempt real property repair services.

Accountants and tax professionals

This letter is a useful walkthrough of the tangible-personal-property-vs-real-property line for equipment that can be installed either way. Note the local tax mechanics: under a separated new-construction contract, local sales tax on the scale is based on the job-site location (Rule 3.379(b)); but real property repair and remodeling charges are taxed at the contractor's own local rate regardless of job-site location (Section 3.357(e)). The letter illustrates both with Abilene/Taylor County/Tuscola examples.

Common questions

Q: Is a scale used on a farm or ranch automatically exempt from Texas sales tax?
A: Not automatically. A free-standing scale used exclusively on a farm or ranch to produce or market agricultural products may qualify for the agricultural exemption under Texas Tax Code Section 151.316 and Rule 3.296. A scale that becomes an improvement to realty (imbedded in a floor, driveway, or the ground) does not get this exemption for repair/remodel labor, even on a farm or ranch.

Q: Who owes the sales tax when a scale is installed into the ground under a lump-sum contract?
A: The contractor owes sales tax on the purchase price paid for the scale; the lump-sum charge billed to the customer is not taxable.

Q: What if the contract separates the charge for the scale from the labor charge?
A: For new construction, the contractor is treated as a seller of the scale and must charge the customer sales tax on the scale unless the customer provides a valid, properly completed exemption certificate. For repair/remodel of existing realty, the customer may issue an exemption certificate for the scale portion, but not for the remodeling labor.

Q: Are repairs to a free-standing scale on a farm taxable?
A: No. Under Texas Tax Code Section 3.3111(a), services to repair, restore, or maintain a free-standing scale that qualifies for the agricultural exemption are exempt, including mileage, labor, and parts charges.

Q: Are repairs to a scale that's part of the real property taxable, even on a farm or ranch?
A: Yes. Charges for mileage, labor, and parts to repair, restore, or remodel a scale that is an improvement to realty are taxable, even when that improvement is located on a farm or ranch.

Q: Do scale tickets get any tax treatment?
A: Scale tickets used to record the weight of agricultural products may qualify for exemption under Texas Tax Code Section 151.316(a)(7) and (8).

Q: How does local sales tax apply to these jobs?
A: Under a separated new-construction contract, local sales tax on the scale is collected based on the job-site location (see Rule 3.379(b)). Real property repair and remodeling service charges are taxed at the contractor's own local rate regardless of where the job site is located (see Section 3.357(e)).

Citations and references

Statutes and rules:

• Texas Tax Code Section 151.316 and Rule 3.296 (agricultural exemption for machinery and equipment used on a farm or ranch)
• Texas Tax Code Section 3.3111(a) (exemption for repair/restoration/maintenance of tangible personal property exempt by nature or use)
• Texas Tax Code Section 151.316(a)(7) and (8) (possible exemption for scale tickets)
• Rule 3.379(b) (contractor's local sales tax responsibilities for new construction)
• Section 3.357(e) (real property repair and remodeling services, local tax)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9610052L

Original ruling text

ALERT: This document may be affected by changes to the Tax Code which was amended by H.B. 268, 82nd Reg. Legislative Session, 2011. The amendment required persons claiming a sales tax exemption for certain agricultural and timber products to apply for and provide a registration number issued by the Comptroller, effective 01/01/2012.

October 28, 1996

Dear ***:

Thank you for your letter of October 24, 1996, asking about your Texas sales
and use tax responsibilities.

Texas Tax Code Section 151.316 and Rule 3.296 concerning agricultural
exemptions exempt machinery and equipment used exclusively on a farm or ranch
in the production of agricultural products. This statute and rule also exempt
machinery and equipment used in marketing agricultural products produced by the
original producer at a location operated by the original producer.

Scales may qualify as agricultural machinery and equipment. Free-standing
scales are tangible personal property and may readily qualify for the
agricultural exemption. However, scales that that are imbedded in the floor of
building, driveway or ground become improvements to realty.

The taxation of scales that become improvements to realty is determined by
nature of the installation and the terms of the contract or billing. Labor to
perform new construction is not taxable. If the scales are incorporated into
the ground for a customer or into a newly constructed building, the jobs
constitute new construction. You are a contractor when you perform new
construction and the terms of the contract or billing determine the tax
liability. If the scale is installed under a lump-sum contract or billing, you
owe sales tax on the purchase price you pay for the scale. The lump-sum charge
to your customer is not taxable.

If the contract or billing for performing new construction is separated (a
separate amount for the scale and a separate amount for labor), you are a
seller of the scale. You must charge your customer sales tax on the charge for
the scale unless, you get a properly completed exemption certificate from the
customer.

The sales tax law taxes services to repair, remodel, or restore nonresidential
improvements to realty. The installation of a scale into the floor of an
existing building, driveway, or road is nonresidential real property
remodeling. The sales tax law does not exempt services to repair or remodel
real property, even if the realty is located on a farm or ranch. If the
contract or billing to remodel existing nonresidential realty is lump-sum, the
total charge is taxable. If the contract or billing separates the charge for
the scale from the charge for the installation, the customer may issue an
exemption certificate for the scale, but not for the remodeling labor.

Texas Tax Code Section 3.3111(a) exempts services to repair, restore, remodel,
or maintain tangible personal property that at the time of its sale is exempt
by its nature or use or a combination of its nature and use. Thus, services to
repair, restore, or maintain free-standing scales located on a farm or ranch
are exempt. The charges for mileage, labor and parts to repair a scale that
qualifies for exemption under the Texas Tax Code Section 151.316 and Rule 3.296
are not taxable.

Services to repair, restore, or remodel scales that are real property on a farm
or ranch are taxable. The charges for mileage, labor and parts to repair,
restore, or remodel an improvement to realty are taxable, even when the
improvement to realty on a farm or ranch.

Scale tickets used to record the weight of agricultural products may qualify
for exemption under Texas Tax Code Section 151.316(a)(7) and (8).

Customers wishing to claim exemption on services to repair, restore, remodel or
maintain agricultural machinery or equipment must issue you a valid and
properly completed exemption certificate.

Your local (city, county and special purpose district) sales and use tax
responsibilities also vary. Under a separated contract for new construction,
you must collect sales tax on the scale based on the location of the job site.
If the job site is outside Abilene but inside Taylor County, you would collect
the 6.25% state sales tax only. If the job site is in Tuscola, you would
collect 7.25% (6.25% state and 1% Tuscola city sales) tax on the scale. See
Rule 3.379(b) concerning contractor's local sales tax responsibilities.

You must collect 8.25% (6.25% state sales and 2% Abilene city sales) tax on the
charge for real property repair and remodeling services regardless of the
location of the job site. See Section 3.357(e) concerning real property repair
and remodeling services.

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

You may call me toll free 1-800-531-5441, extension 3-4683 if you have any
questions or need more information. The direct line is 512/463-4683. You may
also write to Tax Policy Division, Comptroller of Public Accounts.

Sincerely,
Eddie C. Washington
Tax Policy Division