Is installing an awning or canopy taxable as new construction, or as a sale of tangible personal property, under Texas sales tax rules?

Subject

Awnings/Canopies/Canvas Coverings — Tpp Vs. Improvement To Realty

Plain-English summary

A business asked the Comptroller whether installing an awning or canopy meets the definition of "new construction" for Texas sales tax purposes. The answer turns on a factual question: does the canopy become an improvement to the realty (part of the building), or does it stay tangible personal property?

If the canopy becomes an improvement to the realty: the installation labor is new construction labor, and labor for new construction is not taxable. However, the materials used are still taxable, and how they're taxed depends on the type of contract:

• Lump-sum contract — the contractor is treated as the consumer of the materials and owes tax on them at purchase (or accrues tax on materials pulled from a tax-free inventory), plus tax on all materials and equipment bought, leased, or rented for the job. The lump-sum charge to the customer itself is not taxable.
• Separated contract — the contractor is treated as a retailer reselling the incorporated materials. The contractor can buy those materials tax-free with a resale certificate, but must then collect tax from the customer on the total contract price for the incorporated materials. The contractor still owes tax on consumable materials and equipment bought, leased, or rented for the job, and local tax is based on the jobsite location.

If the existing structure has to be modified to accommodate the canopy, that modification work is taxable — this is called out separately, citing subsections (b)(3), (b)(7), and (c)(3) of Rule 3.357 on new construction and remodeling contracts.

If the canopy does not become an improvement to realty and instead keeps its identity as tangible personal property, the entire charge — both the sale and the installation — is taxable.

The letter notes it is based on the facts presented and that different facts could change the outcome.

What this means for you

Awning and canopy installers/contractors

Whether your installation labor is taxable depends on whether the canopy becomes part of the building (an improvement to realty) or remains a standalone piece of tangible personal property. If it becomes part of the building, structure your contract carefully: under a lump-sum contract you pay tax on materials yourself and don't charge your customer tax on the lump-sum price; under a separated contract you can buy materials tax-free with a resale certificate but must collect tax from your customer on the materials portion of the price.

Contractors who must modify the existing building to fit the canopy

Any labor to modify the existing structure so the canopy can be installed is taxable, regardless of how the canopy installation itself is treated.

Businesses purchasing a canopy that stays as tangible personal property (not attached as a realty improvement)

If the canopy doesn't become part of the building, the full charge for both the item and its installation is taxable — there's no non-taxable "new construction" labor component in that scenario.

Common questions

Q: Is labor to install an awning or canopy taxable?
A: Not if the canopy becomes an improvement to the realty — that labor counts as new construction labor, which is not taxable. But if the canopy stays tangible personal property, the entire charge (sale plus installation) is taxable.

Q: If the canopy becomes part of the building, are the materials still taxed?
A: Yes. The materials are taxable; how they're taxed depends on whether the contract is lump-sum (contractor pays tax on materials, customer isn't charged tax on the lump-sum price) or separated (contractor buys materials tax-free for resale, then collects tax from the customer on the materials' contract price).

Q: What if the building needs modification to fit the canopy?
A: That modification work is taxable, per subsections (b)(3), (b)(7), and (c)(3) of Rule 3.357 on new construction and remodeling contracts.

Q: Does adding a canopy or awning add square footage to a building?
A: Generally speaking, no — canopies and awnings do not add additional new footage to a building, according to the letter.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.357(b)(3), (b)(7), (c)(3) (new construction and remodeling work contracts)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9701118L

Original ruling text

January 7, 1997

Dear ****:

Thank you for your letter of December 16, 1996. You asked whether installation
of an awning or canopy meets the definition of new construction.

Generally speaking, canopies and awnings do not add additional new footage to a
building. However, assuming the canopy shown in the picture enclosed with your
letter becomes an improvement to the realty, installation labor would be
considered new construction. The labor to add this improvement is not taxable.
The materials are taxable and are taxed in accordance with the type contract
you enter into with your customer. The contract may be either a lump-sum or
separated contract.

Lump-sum Contract - Under a lump-sum contract, a contractor is considered the
consumer of all materials used to perform the contract. A contractor owes tax
on the materials at the time of purchase or may accrue tax on materials removed
from a valid tax-free inventory. The lump-sum contractor also owes tax on all
materials and equipment bought, leased, or rented for use on the job. The
lump-sum charge to the contractor's customer is not taxable.

Separated Contract - Under a separated contract, the contractor is considered a
retailer reselling the incorporated materials. As such, the contractor may
issue a resale certificate to purchase materials that will be incorporated into
the customer's realty tax free. The contractor must collect tax from the
customer on the total agreed contract price for the incorporated materials.
Under a separated contract, the contractor owes tax on all consumable materials
and equipment bought, leased, or rented for use on the job. Local taxes are
due based on the location of the jobsite.

I should point out that if the existing structure must be modified to
accommodate the canopy, the work to modify the existing structure is taxable.
Please refer to subsections (b)(3), (b)(7) and (c)(3) of Rule 3.357 regarding a
contract involving new construction and remodeling work.

Also, if the canopy does not become an improvement to realty and retains its
identity as tangible personal property, the total charge for the sale and
installation is taxable.

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