For an audio/visual system installer doing remodeling work, are separately stated engineering charges (system design, drawings, installation supervision) taxable when the engineering covers both the equipment itself and the ceiling wiring that connects it?

Plain-English summary

A company that designs and installs audio/visual systems — rack-mounted equipment with wiring generally run through building ceilings — asked for a binding written decision on how to tax its engineering charges (system design, drawing preparation, and installation supervision) when the work is remodeling (not new construction). These engineering charges are normally separately stated on the company's proposals and invoices.

The Comptroller split the answer based on what the engineering actually relates to. The audio/visual equipment itself is not an improvement to real property — it stays tangible personal property even after installation — and installing wiring that isn't run within the ceilings doesn't make that portion remodeling either. So engineering charges tied to the equipment (and non-ceiling wiring) are part of the taxable sales price of the equipment, taxable even when separately stated on the invoice.

But engineering charges tied specifically to the wiring run in the ceiling are different, because that installation does count as remodeling of real property. Under Rule 3.357(b)(2), those ceiling-wiring engineering charges may be separately identified to the customer and are not taxed.

What this means for you

Audio/visual installers, low-voltage contractors, and similar system integrators

Break your engineering/design charges into the portion tied to equipment (taxable, whether separately stated or not) versus the portion tied to in-ceiling (or otherwise realty-remodeling) wiring installation (nontaxable if separately identified). A single blended engineering line item risks over-taxing the ceiling-wiring portion or under-taxing the equipment portion.

Businesses commissioning AV or similar system installations

Ask your installer to separately identify engineering charges tied to ceiling wiring versus equipment design — that split can reduce your taxable invoice total if the installer documents it correctly.

Accountants and tax professionals

This letter is a clean, narrow example of Rule 3.357(b)(2)'s allowance for separately stating (and not taxing) engineering charges tied to real property remodeling work, contrasted against engineering charges tied to equipment that stays personal property — useful for any mixed equipment-plus-realty installation job.

Common questions

Q: Are engineering charges for AV equipment design taxable even if separately stated on the invoice?
A: Yes — engineering charges attributable to the equipment (which remains tangible personal property) are part of the taxable sales price regardless of how they're billed.

Q: What about engineering charges for wiring run through the ceiling?
A: Those may be separately identified to the customer and are not taxed, because ceiling wiring installation counts as remodeling of real property under Rule 3.357(b)(2).

Q: Can I rely on this letter for my own AV installation business?
A: No. This opinion is rendered 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

• 34 Tex. Admin. Code Rule 3.357(b)(2) (separately identified engineering charges attributable to real property remodeling)

Subject

Cabling/Wiring — Running/Installing Wire/Cable/Plugs In Walls/Floors/Ceilings Of Building

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9801229L

Original ruling text

January 27, 1998

Dear **:

Thank you for your recent letter which is restated in part with responses
below.

We are requesting a written decision regarding the taxability of charges for
engineering when incurred on a remodeling (not new) construction job. Our
company designs and installs all types of audio/visual systems.

Our engineering charges are for system design, drawing preparation, and
installation supervision. This charge normally is separately stated to the
customer in a proposal and on our invoice to them.

Please provide a decision in writing that will be binding for any future
invoicing.

Response: In our telephone conversation of January 27, 1998, you said that you
install rack mounted audio/visual systems with wiring generally run through the
ceiling of the buildings. The engineering relates to both the equipment, which
retains its character as tangible property after installation, and the
connective wiring in the ceilings.

The audio/visual system itself is not an improvement to realty and the
installation of the equipment and wiring that is not run within the ceilings
does not constitute remodeling of real property. Engineering charges
attributable to this portion is part of the sales price of the equipment and is
subject to sales tax even if the charge is separately stated.

Engineering charges attributable to the wiring in the ceiling may be separately
identified to the customer and not taxed under Subsection (b)(2) of the
enclosed Rule 3.357.

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

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. The email address is .

Sincerely,

Al Van Allen
Tax Policy Division