Was a pipeline-welder testing company's charge taxable when it prepared pipe coupons, stress-tested the welds, reported results, and transferred samples?

Plain-English summary

A testing company evaluated welders a customer was considering for pipeline work. The tester bought pipe, cut it into smaller pieces, took the pieces to a pipeline site, and had each candidate welder join two pieces. It then returned the welded samples to its facility, stress-tested the welds, reported the results, and transferred each sample or “coupon” to the customer for inspection.

The Texas Comptroller treated the transaction as a nontaxable service. The transfer of the coupon did not make the customer's charge taxable. The testing company, however, had to pay tax when buying taxable items used to provide the service.

What this means for you

The letter classified the transaction by its testing purpose rather than by the incidental transfer of the tested physical sample. The service provider was the consumer of its taxable inputs.

Common questions

Was the customer charge for the welder test taxable? No.

Did transferring the welded coupon make the service taxable? No, under the stated facts.

Who owed tax on the materials used in testing? The testing company had to pay tax when purchasing taxable items used to provide the service.

Did the letter rule on semiconductor, chip, metal, or oil-equipment testing? No. Those subjects appear in STAR's caption but not in the operative body.

Citations and references

• The letter cites no statute or administrative rule.
• Its operative classification is that the client “is providing a service” and the customer charge is not taxable.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8704L0804A01

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller

April 1, 1987

Dear **:

Thank you for your recent letter regarding your client's sales and use
tax
responsibilities.

Per our telephone conversation last week, your client's business involves
testing the work of a welder your client's customer is considering hiring
for
a pipeline job. Your client buys a length of pipe and cuts it into
several
smaller pieces. When the customer contacts your client, your client
takes
the pieces out to a pipeline site, whereupon the welder(s) who is vying
for
the job welds two pieces together. Your client takes the welded
sample(s)
back to its facility, where stress testing (involving banding) is done to
the
weld. Your client then reports the test results to its customer, and as
a
part of this report transfers the sample (called a "coupon") to the
customer
for his inspection.

Your client is providing a service, and the charge to its customer is not
taxable. Your client must pay tax at the time of purchase on all taxable
items used in providing this service.

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

If you have any questions or need more information, please call me at
1-800-252-5555 toll free from anywhere in Texas. The regular number is
512/463-4600. You may write me at the Tax Administration Division.

Sincerely,
Sandi Skaggs
Tax Policy Section
Tax Administration Division