How is Texas sales tax figured on manufacturing and installing signs — is it always taxed as tangible personal property, or does it depend on whether the sign becomes part of the building and whether the job is new construction or remodeling?

Plain-English summary

A sign manufacturer/installer asked the Comptroller for a general framework to figure out how its jobs are taxed, since the answer depends on the facts of each particular job. The letter lays out a three-question decision tree.

Question 1 — Personal property or real property? If the sign stays identifiable as tangible personal property (not built into the structure), tax is simply due on the full charge — labor and materials together — for selling and installing it. If instead the sign becomes an improvement to real property (built into or permanently affixed to a structure), you move to question 2.

Question 2 — New construction or remodeling? New construction covers attaching or erecting a sign as part of finishing out a brand-new building, or installing a free-standing sign on a brand-new pylon or pole where no sign existed before. Remodeling covers attaching a new sign to an existing building or existing pylons/poles, and also covers changing the copy on an existing sign or redoing the whole sign.

Question 3 (new construction only) — Lump-sum or separated contract? Under a lump-sum contract (one price for everything), the sign company is the consumer of the materials — it owes tax on the materials itself (at purchase, or accrued from tax-free inventory) and on any equipment bought/leased/rented for the job, but may not add tax to the customer's lump-sum price. Under a separated contract (materials and labor itemized), the sign company is treated as a retailer reselling the incorporated materials — it can buy those materials tax-free with a resale certificate, but must collect tax from the customer on the materials portion of the price; labor stays untaxed. Local taxes in this case are based on the jobsite location.

Repair/remodeling jobs are simpler: tax is due on the entire charge — labor, materials, expenses, profit, and overhead all together — regardless of how the contract is billed. The sign company can still buy the incorporated materials tax-free with a resale certificate. Local city/county/special-purpose-district tax is based on the sign company's place of business, while MTA tax follows the jobsite.

What this means for you

Sign manufacturers and installers

Work through the three questions above for every job before assuming a tax treatment: is it personal property or realty; if realty, new construction or remodeling; and if new construction, lump-sum or separated. The same physical sign job (say, replacing a pylon sign) can be taxed completely differently depending on whether a sign previously existed there.

Business owners commissioning new signage

If you're replacing signage on an existing building or existing pole, that's remodeling — taxed on the full charge no matter how it's billed. If you're putting up a brand-new pylon sign where none stood before (or finishing out new construction), your contractor's billing structure (lump-sum vs. separated) changes who pays tax on what.

Accountants and tax professionals

This letter is a compact, general-purpose framework — useful as a checklist any time a sign, awning, or similar affixed-structure job's taxability is in question, since the same personal-property/realty and new-construction/remodeling analysis recurs across many types of installed fixtures.

Common questions

Q: Is tax due on the whole charge for a sign, or just the materials?
A: It depends on the answers to the three questions above — personal property jobs and remodeling jobs are taxed on the whole charge; new construction jobs depend on whether the contract is lump-sum or separated.

Q: Is putting a new sign on an existing pole "new construction"?
A: No — attaching a new sign to existing pylons or poles (or an existing building) is remodeling, not new construction. New construction requires a brand-new pylon/pole or building finish-out where no sign previously existed.

Q: Can I rely on this letter for my own sign job?
A: No. This opinion is based on the facts presented, and additional or different facts may change the result; it binds the Comptroller only as to the taxpayer it was issued to.

Citations and references

• No specific Tax Code section or Comptroller rule number is cited in the body of this letter; it applies the Comptroller's general contractor framework (personal property vs. realty; new construction vs. repair/remodeling; lump-sum vs. separated contracts) to sign manufacturing and installation.

Subject

Sign — Attaching To Existing Building Or Pylons/Poles; Painting — Remodeling Vs. New Construction

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9801110L

Original ruling text

January 29, 1998

Dear **

Thank you for your letter of January 21, 1998. You asked that we address the
taxability of signs you manufacture and install.

To determine the taxability of a particular job, you must first answer several
questions. First, there is the question of whether a job is an improvement to
realty or a sale and installation of tangible personal property.

If the sign retains its identity as tangible property, tax is due on the total
charge (i. e., labor and materials) for the sale and installation of the sign.
If the sign becomes an improvement to realty, there is the question of whether
the job is new construction or remodeling.

New construction jobs include attaching or erecting the sign as part of the
completion or finish-out of a newly constructed building and erecting and
installation of free-standing signs on new pylons or poles where no sign
previously existed. Remodeling jobs include attaching a new sign to an
existing building or existing pylons or poles and "changing copy on existing
signs or redoing the whole sign" as described in your letter.

If the job is new construction, the type of contract you enter into with your
customer will determine the taxability of the job. You may use either a
lump-sum contract or a separated contract.

Lump-sum Contract - Under a lump-sum contract, you charge a single amount for
labor, materials, profit, overhead, etc. As a lump-sum contractor, you are
considered the consumer of all materials used to perform the contract. You owe
tax on all the materials used to complete the contract at the time of purchase
or you may accrue tax on materials removed from a valid tax-free inventory.
You also owe tax on all materials and equipment bought, leased, or rented for
use in completing the job. You may not add tax to the lump-sum charge given to
your customer.

Separated Contract - Under a separated contract, you are considered a retailer
reselling the materials incorporated into the sign. As such, you may issue a
resale certificate to purchase materials that will be incorporated into the
customer's realty tax free. You must collect tax from your customer on the
total agreed contract price for the incorporated materials. No tax is due on
the charge for labor. You owe tax on all consumable materials and equipment
bought, leased, or rented for use in completing the job. Local taxes are due
based on the location of the jobsite.

If the job involves repair or remodeling, tax is due on the total charge
(including labor, materials, expenses, profit and overhead) billed to the
customer. You may purchase the items incorporated into the customer's realty
tax free by issuing a resale certificate to your supplier. You owe tax on all
consumable materials and equipment bought, leased, or rented for use in
completing the job. Local city, county, and special-purpose district taxes are
determined based on the location of your place of business. Mass Transit
Authority (MTA) taxes are due based on the location of the job site.

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