For customer-owned property like a trade show exhibit booth, what distinguishes taxable 'assembly' labor from nontaxable 'set-up' or 'installation' labor?

Plain-English summary

A company working with customer-owned tangible personal property (like trade show exhibit booths) had reviewed two earlier STAR letters on set-up, installation, and assembly charges but found neither one clearly defined where "assembly" ends and "set-up" begins. It asked the Comptroller to draw that line so it could correctly bill and tax its labor charges.

The Comptroller answered by pointing to a clearer distinction from an earlier STAR accession letter:

• "Installation" means placing tangible personal property in position, without changing its form, so it accomplishes its intended purpose — the letter's own examples are hanging pictures, mirrors, and chandeliers. If a company is only installing (not selling or assembling/erecting) the merchandise, that installation charge is not taxable. (Installation performed as part of a repair or remodel of tangible personal property is a different, taxable scenario.)
• "Assembly" or "erection" means the labor to connect component parts into a finished product — the final stage of the manufacturing process. Assembly/erection labor has been taxable in Texas since 1961.
• Simply relocating a customer's existing (already-assembled) furniture from one place to another, without reassembling it, is not taxable.

Applying this to trade show booths specifically: the initial set-up of a newly constructed, unassembled trade show booth is taxable assembly — the final stage of manufacturing — even though title to the booth has already passed to the customer. The same logic applies to a large conference table shipped unassembled because it won't fit through a door: the initial assembly is taxable. But subsequent set-up of that same booth (by the manufacturer or by a third party at a later event) is not taxable, because at that point there's no more manufacturing happening — it's just moving and re-erecting something already complete. Likewise, disassembling and reassembling the same conference table purely to move it to a new location is a nontaxable moving service, not fabrication, because "the essence of the transaction... is a moving service and not fabrication."

What this means for you

Trade show exhibit contractors and suppliers

Bill and account for labor differently depending on whether it's the first time a booth is put together (taxable assembly/fabrication, regardless of who owns it by then) versus a later re-erection of the same already-built booth for a subsequent show or after a move (nontaxable set-up/installation). Your invoices and bid sheets should clearly document which scenario applies, since that documentation is what the Comptroller will look to if the taxability is questioned.

Furniture and large-item delivery companies

The same rule applies beyond trade shows: initial assembly of an item too large to ship pre-built (like a conference table) is taxable fabrication, but later disassembly/reassembly purely to relocate that same finished item is a nontaxable moving service.

Accountants and tax professionals

The controlling authorities referenced are an internal STAR accession letter (8805L0904G01) that supplied the installation/assembly definitions, two prior letter rulings on customer-owned exhibit property, and a Comptroller hearing decision (Hearing No. 32,417) that also distinguishes third-party installation from assembly. None of these change the underlying rule that assembly/erection has been taxable since 1961 (predating current statute numbering) — the analysis is about which category a given labor charge falls into.

Common questions

Q: Is installing a trade show booth always taxable?
A: Only the initial assembly of a newly built, unassembled booth is taxable — that's the final stage of manufacturing. Later set-up of the same completed booth at another event, or after moving it, is not taxable.

Q: Does it matter who owns the booth when it's first assembled?
A: No — the initial assembly is taxable fabrication even if title has already passed to the customer, because the taxable event is completing the manufacturing process, not a sale of property.

Q: If a company only hangs or places an item without changing its form, is that taxable?
A: No — that's "installation" under this ruling's definition (e.g., hanging pictures or chandeliers) and is not taxable, unless it's combined with assembly of the item being installed, or performed as part of a taxable repair/remodel.

Q: Can another exhibit company rely on this letter for its own booths?
A: No. It answers the specific facts presented; STAR letters generally support detrimental reliance only for the taxpayer who received them, and your own contracts and documentation would need to be reviewed against this framework.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200107420L

Original ruling text

July 30, 2001

Dear **:

Thank you for your inquiry requesting a written ruling on the following fact
situation and questions.

"We request a clarification of the law on the taxability of labor charges
associated with the erection of customer-owned tangible personal property. We
have organized this request by first stating what we believe to be the relevant
facts. We then specifically outline the tax questions we are attempting to
address in the Issue section. Following the Issue section is a discussion of
the relevant law and our conclusions for your confirmation. We understand that
your conclusions will be based on the facts presented and that a change in the
facts as we have described them may change the conclusion."

Your Facts

"Our company has been reviewing Letter Ruling 9710970L and Letter Ruling
200005335L regarding set-up, installation, and assembly charges associated with
customer-owned tangible personal property in Texas. We understand set-up
charges in Texas are nontaxable, and assembly charges are taxable. We found no
clarifications in these two letter-rulings as to what qualifies as assembly or
set-up charges."

Issue

Please distinguish between assembly and set-up charges for customer-owned
property in Texas. Please state criteria that would help our company
differentiate between assembly and set-up charges.

Your Discussion of Applicable Law & Conclusion

"According to Letter Ruling 9710970L, charges for subsequent storage, set-up,
and breakdown of customer-owned displays in Texas are not taxable. Based on our
discussions with tax policy it appears that subsequent erection services after
title of the property has transferred to the customer will be construed as
set-up charges and nontaxable.

According to Letter Ruling 200005335L, assembly of third-party furniture being
installed was taxable. "Install" means to set in place for intended usefulness.
Installation is not taxable. However, installation that also includes assembly
of the furniture being installed is considered taxable.

We understand that charges for "set-up" and charges for "installation" of
third-party property are considered nontaxable services. However, charges for
assembly of that same property would be considered taxable fabrication.

Our request is to clarify what constitutes assembly versus set-up or
installation. Please advise if there are criteria our company can use to
distinguish between set-up and assembly, as it relates to services being
provided on customer-owned property."

RESPONSE: STAR accession letter 8805L0904G01 provides a clearer definition of
and distinction between "installation" and "assembly" as follows:

For sales and use tax purposes, the definition of "installation" is to place
tangible personal property in position, without changing its form, where it
will reasonably accomplish the purpose for which it will be utilized. Examples
of this are hanging pictures, mirrors and chandeliers. If your company is doing
installation per definition, and not selling or assembly/erecting the
merchandise being installed, then the charge is not taxable. Installation labor
performed in conjunction with the repair/remodeling of tangible personal
property is taxable; please see the discussion below.

"Assembly" or "erection" is the labor to connect component parts into a
finished product; it is the final stage in the manufacturing process. Sales tax
has been due on a charge for assembly or erection of tangible personal property
since 1961. If your company is only moving a customer's" old" furniture from
one place to another and not reassembling it, the charge is not taxable.

Therefore, in STAR accession #9710970L, the initial setup charge for a newly
constructed trade-show booth is taxable assembly as this is considered the
final stage in the manufacturing process, even if title has passed. Subsequent
set-up of the same trade show booth by a third party or by the manufacturer are
not taxable. Similarly, the initial set-up of a large conference table (that is
shipped unassembled because it will not fit through the door) is taxable
assembly, i.e., the final stage in the manufacturing process. Subsequent labor
to disassemble and reassemble the conference table to effect a move of the
table to another location is not taxable. The essence of the transaction in
this situation is a moving service and not fabrication. Hearing No. 32,417
(9411H1321E06) also distinguishes between 3rd party installation and assembly.

Your client's documentation, i.e., invoice, bid sheets, etc. should be clear as
to the exact purpose of the service being provided.

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, you may e-mail our tax help section at [email protected].
You may also 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.

Sincerely,

Gilbert Zamora
Tax Policy Division