We're adding a fourth floor to a 3-story building and need to modify the existing elevator to reach it. Is extending the elevator to the new floor new construction, and is modifying the existing elevator equipment in the first-floor shaft area new construction or taxable remodeling?

Plain-English summary

A building owner was adding a fourth floor to an existing 3-story building and needed to modify the building's existing elevator so it could reach the new floor. Two specific pieces of work were at issue:

1. Extending elevator tracks and support structures onto the new fourth floor. The Comptroller ruled this is new construction — installing new tracks and support structures on the newly added floor itself counts as building the addition, not altering the existing structure.

2. Adding or modifying equipment (jacks, pumps) in the existing first-floor elevator shaft area. Even though this work exists solely to let the elevator reach the new fourth floor — and wouldn't improve service to the other three existing floors at all — the Comptroller ruled this is taxable remodeling, not new construction. The key reasoning: the location of the work is what matters. Work happening within the existing structure (the first-floor shaft area) stays remodeling of that existing structure, regardless of why the work is being done or whether it happens to serve the new addition.

What this means for you

Building owners adding new floors or stories to existing structures

Expect a taxability split running right along the boundary between old and new: work performed on the brand-new floor/addition itself is untaxed new construction, while work performed within the pre-existing structure — even work that exists only to support or connect to the new addition — is taxable remodeling.

Elevator contractors and other trades working on building additions

Don't assume that because a job is "part of the new construction project," all of it escapes tax. Track carefully which physical location each piece of work happens in; the Comptroller looks at where the work occurs, not the overall purpose of the project.

Accountants and tax professionals advising on mixed addition/remodel contracts

This letter is a useful, narrow illustration that "necessary to accommodate the new construction" is not itself an exception to remodeling taxability — only work actually performed on the new structure is new construction.

Common questions

Q: Is extending an existing elevator's tracks onto a newly built floor taxable?
A: No — installing new tracks and support structures on the new floor is new construction.

Q: Is modifying elevator equipment in the existing part of the building, done only to serve the new floor, taxable?
A: Yes — that's taxable remodeling, because the work occurs within the existing structure, regardless of its purpose.

Q: Does it matter that the shaft modifications don't improve service to the existing floors?
A: No — the letter specifically states that whether or not the changes enhance service to existing floors doesn't change remodeling into new construction.

Q: Can I rely on this letter for my own building-addition project?
A: No. This opinion is based on the facts presented, and other facts, though similar, may provide a different result; it can be relied on only by the taxpayer it was issued to.

Citations and references

No specific Tax Code section or Comptroller rule number is cited in this letter; the Comptroller applies the general new-construction-versus-remodeling distinction without quoting a statute or rule number in the response.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9903246L

Original ruling text

March 2, 1999

Dear **:

This is in response to your request for a ruling on whether the following work
as new construction or remodeling involving the modifications of an existing
elevator in a 3-story structure to service a planned addition of a fourth
floor. Your fact situation and questions are restated below, followed by my
response:

1. In order for the existing elevator to service the fourth floor, obviously
   existing tracks must be extended to the fourth floor, as well as support
   structures and etc. Would this work be considered new construction or
   remodeling?

Response: Installing new tracks and support structures on the new fourth floor
to allow the existing elevator to service the fourth floor is new construction.

2. Additional equipment such as jacks and pumps must be installed and/or
   modified in the first floor area of the elevator shaft in order for it to
   provide service to the fourth floor. These changes would not enhance the
   service provided to the other three floors and would only be necessary to
   provide service to the fourth floor. Would this work be considered new
   construction or remodeling?

Response: The addition of equipment such as jacks and pumps installed or
modified in the first floor area of the elevator shaft is taxable remodeling.
The fact that changes must or may be made to an existing structure to
accommodate or facilitate elevator service to the fourth floor and whether or
not the changes will enhance the service to the existing floors does not change
remodeling to new construction.

This opinion is based on the facts presented. Other facts though similar may
provide a different result. I hope this information answers your questions.
If you need additional information, please call me toll-free at 1-800-531-5441,
extension 3-4502. The direct line is 512/463-4502. You may also write to Tax
Policy Division, Comptroller of Public Accounts. You may also e-mail our tax
help section at:

Sincerely,

Gilbert Zamora
Tax Policy Division