Is the labor to set up a computer -- connecting the monitor, mouse, keyboard, and printer to the CPU -- taxable in Texas?

Subject

Hardware — Assembly/Initial Set Up Of Computer System (Connecting Monitor, Mouse, Keyboard, Printer To Cpu)

Plain-English summary

A taxpayer emailed the Comptroller's office asking about the tax treatment of labor to set up a Unix box. The Comptroller answered that the initial set up of a computer -- connecting the monitor, mouse, keyboard, and printer to the CPU -- is considered assembly of tangible personal property and is subject to sales tax.

The letter is short but the rule it states is broad: assembly of tangible personal property is taxed under Section 151.005 of the tax code, and that holds true regardless of whether the service company or the customer provides the materials and supplies involved. In other words, it doesn't matter whether the tech who hooks up the machine brings the cables and hardware or the customer already has everything on hand -- the labor to assemble/connect the components is still taxable.

What this means for you

Computer repair and IT service businesses

If you charge for the labor to set up a new computer system -- plugging in the monitor, mouse, keyboard, and printer to the CPU -- that labor is taxable assembly under Section 151.005, and you should charge sales tax on it. This applies even if the customer supplies their own monitor, keyboard, or other peripherals rather than you providing them.

Businesses buying computer setup services

Expect sales tax to apply to computer setup/assembly labor billed by a vendor or IT contractor, whether or not you supplied the hardware and cables yourself. The taxability turns on the nature of the labor (assembly of tangible personal property), not on who owns the materials.

Accountants and tax professionals

This letter is a narrow, fact-specific answer to a single email inquiry, but it confirms that "assembly" of tangible personal property -- including simply connecting computer peripherals to a CPU -- falls under Section 151.005 and is taxable labor, independent of who furnishes the materials and supplies.

Common questions

Q: Is the labor to connect a monitor, mouse, keyboard, and printer to a CPU taxable in Texas?
A: Yes. The Comptroller ruled that this initial computer set up is considered assembly of tangible personal property and is subject to sales tax.

Q: Does it matter whether the customer or the service company supplies the equipment and cables?
A: No. The letter states that assembly of tangible personal property is taxed under Section 151.005 of the tax code "regardless of whether the service company or the customer provides the materials and supplies involved."

Q: What statute makes this labor taxable?
A: Section 151.005 of the tax code, which taxes assembly of tangible personal property.

Q: What prompted this ruling?
A: A taxpayer's email asking about the tax treatment of labor to set up a Unix box.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9610129L

Citations and references

Statutes:

• Section 151.005 of the tax code (assembly of tangible personal property is taxable, regardless of who provides the materials and supplies)

Original ruling text

October 17, 1996

Dear ***:

Thank you for your recent email asking about the tax treatment of labor to set
up a Unix box.

The initial set up of a computer, i.e. connecting the monitor, mouse, keyboard
and printer to the CPU, is considered assembly and is subject to sales tax.
Assembly of tangible personal property is taxed by Section 151.005 of the tax
code regardless of whether the service company or the customer provides the
materials and supplies involved.

I hope this information is helpful. 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 Policy, Comptroller of Public Accounts. My Internet address is
.

Sincerely,
Al Van Allen
Tax Policy Division