Can a cable/telecom subcontractor buy the cable and hardware it permanently installs inside customers' buildings (schools, apartments, offices) tax-free for resale, when the cable is billed as part of a taxable telecommunications/cable service rather than sold separately?

Plain-English summary

A cable/telecom company (Company A) installs fiber and/or coax cable and hardware (mainly splitters) inside the walls and ceilings of several interconnected school buildings, acting as a subcontractor to another company (Company B) that bills the school district for the telecommunications service. At the end of the school district's contract, the cable is abandoned in place and becomes the school's property — Company A physically cannot remove the inside wiring. Company A asked whether the cable/hardware is subject to sales tax when purchased, or whether it can be bought tax-free for resale.

The Comptroller's answer turns on Tax Code § 151.302(b): tangible personal property used to perform a taxable service is not considered "resold" (and thus can't be bought tax-free under a resale certificate) unless care, custody, and control of that property transfers to the purchaser of the service. The Comptroller cited a real Texas appellate decision, John Sharp v. Clearview Cable TV, Inc. (Third Court of Appeals, Austin), which held that a cable subscriber who is contractually required to "properly care for" the provider's equipment — and not damage, remove, or alter it — does receive that care, custody, and control, even though the provider still legally owns the equipment.

Applying this to the school scenario: because Company A's contract terms with the school district create a similar care-of-equipment obligation, Company A may buy the cable and splitters installed in the school building walls and ceilings tax-free for resale.

The letter then extends the same analysis to Company A's other business — installing cable inside apartment complexes and commercial buildings for cable TV service (also abandoned in place at lease-end, becoming the property owner's). Here the answer is more nuanced:

• Cable/splitters installed on an individual subscriber's own premises (their specific apartment unit or office) can be bought tax-free for resale, as long as the subscriber contract contains similar Clearview-style care-of-equipment terms.
• Cable/splitters installed in common areas of the apartment complex or office building — anywhere other than a specific subscriber's own individual premises — are not considered transferred to any customer's care, custody, and control, and stay taxable to Company A when purchased.

Currency note: this record's own STAR annotation flags that Rule 3.285 (Resale Certificates; Sales for Resale), the rule that now governs this exact resale-certificate topic, was amended effective November 1, 2017 — roughly nineteen years after this 1998 letter. Verify this letter's specific care-custody-and-control analysis against current Rule 3.285 guidance before relying on it today.

What this means for you

Cable, telecom, and fiber installation subcontractors

Whether you can buy the cable/hardware you permanently install tax-free for resale depends on a location-by-location, contract-specific test: does the specific customer whose premises the equipment sits on have a contractual obligation to care for and not damage/remove/alter the equipment? If yes (and it's on their own individual premises, not a shared common area), you likely can resell it tax-free. If the equipment sits in shared/common space not tied to one subscriber's own unit, expect to pay tax on it as the purchaser.

Accountants and tax professionals

This letter is a useful walkthrough of the § 151.302(b) care-custody-and-control resale test, anchored in the Clearview Cable case — but given the letter's own noted 2017 rule amendment, treat the specific factual conclusions here as illustrative of the analytical framework rather than as current law without independent verification.

Common questions

Q: Can a cable installer buy cable and splitters tax-free for resale if they're permanently installed in a customer's building?
A: Per this letter, yes, IF care, custody, and control of the equipment transfers to that specific customer — typically shown by a subscriber contract requiring the customer to care for and not damage/remove/alter the equipment.

Q: Does it matter where in the building the cable is installed?
A: Yes, per this letter — cable on an individual subscriber's own premises can qualify for resale treatment, while cable in common/shared areas not tied to one subscriber generally does not.

Q: Is this 1998 analysis still current law?
A: Not necessarily — per the currency alert carried in this record, Rule 3.285 (which now governs this topic) was amended in 2017, so verify against current guidance.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.302(b) (resale requires transfer of care, custody, and control)
• 34 Tex. Admin. Code Rule 3.285 (Resale Certificates; Sales for Resale — amended 11/01/2017, postdates this letter)
• John Sharp v. Clearview Cable TV, Inc., No. 03-97-00265-CV (Tex. App.—Austin) (subscriber's contractual duty to care for equipment transfers care, custody, and control)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9808769L

Original ruling text

ALERT: For specific guidance relating to the care, custody and control of TPP when providing a taxable service, please see Rule 3.285, Resale Certificates; Sales for Resale (amended 11/01/2017.

August 24, 1998

Dear Mr. **:

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

I have another question regarding tax issues of materials we purchase. In my
previous letter, I stated that no inside wiring would be installed on the
school premise. We are, however, installing some fiber and/or coax inside each
of the schools that we are interconnecting. The accounting treatment for
inside wiring would be handled the same as our distribution system (trunk). It
would be an asset on our books subject to depreciation over its economic life.
At the end of the lease by ** ISD, the cable would be abandoned in
place and become property of the school. We cannot physically remove the
inside-wiring portion of our network. My question is would the materials
(cable, hardware, etc.) at the time of purchase be subject to sales tax?

Response: In our telephone conversation of August 18, 1998, you stated that
the wiring in question would be run in walls and ceiling of the various school
buildings and the hardware would consist mainly of splitters within the cable
system. COMPANY A is acting as a subcontractor of COMPANY B that will bill the
school district for the telecommunications service.

Under Tax Code 151.302(b), tangible personal property used to perform a
taxable service is not considered resold unless the care, custody, and control
of the tangible personal property is transferred to the purchaser of the
service. The Texas Court of Appeals, Third District, at Austin recently ruled
on the issue in No. 03-97-00265-CV, John Sharp v. Clearview Cable TV, Inc.
dealing with this issue. The decision states in part, "the subscribers, as
possessors of the equipment and users of the service, inherently have a right
to control the equipment and are contractually bound to "properly care" for it
as well. For example, paragraph 5(a) of the subscription agreement provides in
part:

CARE OF EQUIPMENT. Subscriber shall properly care for [CLEARVIEW'S] equipment
and shall not suffer or permit any damage, removal, or alteration of equipment.

Under a contract with these conditions, COMPANY A may buy the cable and
splitters installed in the school building walls and ceilings tax free for
resale.

COMPANY A also installs cable for apartment complexes and commercial building
in order to provide cable TV service. Again, the cable would be abandoned in
place at the end of the lease and become property of the owner.

Response: COMPANY A may buy the cable and splitters installed in the apartment
complexes and commercial building tax free for resale to the extent that the
cable and splitters are located on their customer's property and their contract
with their subscribers contains similar conditions to that in Clearview as
restated above. Cable and splitters located on property of individuals other
than the purchasers of the service is not transferred to the care, custody, and
control of the customer and may not be purchased for resale. For example,
equipment at or within an apartment complex or office building, but not
specifically on the subscriber's premises (individual apartment or office),
could not be considered transferred to the customer's care, custody and control
and so would be taxable to the service provider at the time of purchase.

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