We sell and install monuments, headstones, and cemetery benches that get bolted to concrete footings in burial plots. Do we charge our customers sales tax, or are we treated as a contractor who just pays tax on our own materials?

Plain-English summary

A monument and cemetery-furnishings business asked how sales tax applies to selling and installing monuments, headstones, vaults, and benches that get permanently set into burial plots — specifically, cemetery benches bolted to concrete footings.

The contractor test. Under Tax Code Sec. 151.056, someone making a permanent improvement to realty who charges a single lump-sum price for both materials and labor is treated as the consumer of the materials they incorporate — meaning they pay sales tax on their own purchase cost of the materials, recover that cost (plus profit) in the lump-sum charge to the customer, and do not charge the customer any separate sales tax.

Is a monument/bench actually an "improvement to realty"? The Comptroller applied Texas's longstanding three-part test from Hutchins v. Masterson & Street, 46 Tex. 551 (1877):

1. Was there real or constructive annexation of the item to the realty?
2. Was the item fit or adapted to the realty's use or purpose?
3. Did the party attaching it intend the item to become a permanent part of the property?

The court in Hutchins held that intention is the most important of the three factors — the other two mainly serve as evidence of that intent. Here, cemetery benches bolted to concrete footings, and monuments/markers generally, are things purchasers clearly intend to be permanent. So these items qualify as improvements to realty when sold and installed this way.

The bottom line for billing: because the items qualify as permanent improvements and the firm sells/installs them, the firm is a lump-sum contractor when it charges one price for the item and its installation — no sales tax to the customer, tax paid by the firm on its own materials cost instead. But if the firm separately states a charge for installation labor, or sells the item apart from installation (e.g., selling just the monument without also handling the install), sales tax must be charged on those amounts.

What this means for you

Monument, headstone, and cemetery furnishing companies

Bill your customers using a single lump-sum price covering both the item and its installation if you want to avoid charging them sales tax directly — you'll instead pay tax yourself on the materials when you purchase them. If you break out installation labor as a separate charge, or sell the item without installation, that separately stated portion becomes taxable to the customer.

Cemeteries and memorial parks contracting with monument installers

Understand which billing structure your vendor is using — a lump-sum invoice means no separate sales tax line item (tax was already baked into the vendor's cost basis), while a separated invoice means you'll see sales tax charged on the installation and/or item price.

Accountants and tax professionals advising monument or memorial businesses

The controlling legal test is the 1877 Hutchins three-factor improvement-to-realty analysis, with intention as the dominant factor — and the practical tax consequence turns entirely on whether the invoice is billed lump-sum or with separately stated charges, per Tax Code Sec. 151.056.

Common questions

Q: Do we charge our customers sales tax when we sell and install a cemetery monument?
A: Not if you bill a single lump-sum price for the monument and its installation — you're the consumer of the materials and pay tax yourself instead.

Q: What if we separately state our installation labor charge?
A: Then sales tax must be charged on that separately stated amount.

Q: Are bolted-down cemetery benches considered part of the real property, or just personal property?
A: They're treated as permanent improvements to realty, since purchasers clearly intend them to remain permanently in place — intention is the most important of the three classic Hutchins factors.

Q: Can I rely on this letter for my own monument or memorial business?
A: No. This opinion is rendered based on the facts presented, and if there are additional or different facts, the opinion may change; it can be relied on only by the taxpayer it was issued to.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.056 (contractors — lump-sum billing makes the contractor the consumer of incorporated materials)

Case law discussed in the letter:

• Hutchins v. Masterson & Street, 46 Tex. 551 (1877) (three-part test for whether an article becomes an improvement to realty: annexation, fitness/adaptation, and — most important — intention)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9812057L

Original ruling text

December 31, 1998

Dear **:

I just want to take a moment to respond to your recent letter and our telephone
conversation of December 31, 1998.

Under Tax Code Sec. 151.056, an individual making a permanent improvement to
realty that charges a single lump-sum charge for materials and labor is
considered to be the consumer of the incorporated materials. As such, the
contractor owes tax on the purchase price of the materials and recovers all of
their costs, including tax, and profit in the lump-sum charge to their
customer. No tax is charged to the customer.

The basic and long established Texas tests for determining whether a particular
article or structure is an improvement to realty was set out in the leasing
case of Hutchins v. Masterson & Street, 46 Tex. 551(1877) as follows:

(1) Has there been a real or constructive annexation of the article in question
to realty?

(2) Was there a fitness or adaptation of such article to the uses or purposes
of the realty with which it is connected?

(3) Whether or not it was the intention of the party making the annexation that
the chattel in question should become a permanent accession to the freehold?
--this intention being inferable from the nature of the article, the relation
and situation of the parties interested, the policy of the law in respect
thereto, the mode of annexation, and purpose or use for which the annexation is
made.

And of these three tests, pre-eminence is to be given to the question of
intention to make the article a permanent accession to the freehold, while the
others are chiefly of value as evidence as to this intention...Hutchins, supra
at 554.

As we discussed, the cemetery benches you mentioned are bolted to concrete
footings set in the realty. There is no question that the purchasers of the
monuments, markers, and benches intend those items to be permanent.
Accordingly, your firm will be considered to be a lump-sum contractor when it
sells and installs these items for a lump-sum price. Sales tax must be charged
on such items when separate charges are made for installation labor or
otherwise sold separate and apart from installation.

To my knowledge, the rule is not being considered for revision at this time.

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