Was an engineering scale model taxable when built from client specifications, and did the result change when the provider created the design after consultation?

Plain-English summary

When the client supplied the design specifications, the provider was selling a taxable scale model. Tax applied to the total price, including labor and materials, and the seller could give a properly completed resale certificate when buying materials incorporated into the model.

When the client supplied no design or specifications and the provider designed and constructed the model after consultation, the work was a professional service. The model materials were incidental to that service, so the provider paid tax when buying them and did not collect tax on the amount billed to the client.

What this means for you

The historical result turned on who supplied the design. Fabrication to customer specifications was treated as a taxable product sale; provider-created design plus construction was treated as a professional service with the provider consuming the materials.

Common questions

Was a client-specified model taxable? Yes, including labor and materials.

Could the seller buy incorporated materials for resale? Yes, with a properly completed resale certificate.

Was a provider-designed model service taxable to the client? No, under the stated facts.

Who paid tax on materials in the professional-service case? The provider, when purchasing them.

Citations and references

• No statute or administrative rule is cited in the letter text.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8711L0848A09

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller November 13, 1987

Dear *****:

Thank you for your recent letter requesting appropriate sales tax law
application in relation to the design and sale of working models of
engineering projects.

Two basic activities exist in the design and sale of scale models. One
is to prepare the scale model according to specifications provided by
the client. The second function is to design and construct the model
after consultation with the client. In this second activity the client
does not provide a design or specifications. The following paragraphs
clarify the application of tax in each activity.

The first function is to prepare a scale model according to specifica-
tions provided by the client. The total sales price, including labor
and materials, is taxable to the client. The seller may issue a proper-
ly completed resale certificate in lieu of tax on materials incorporated
into the taxable model.

The second activity is to design and construct the scale model after
consultation with the client. The client does not provide a design or
specifications. In this situation, the provision of professional service
exists. The materials used to design and construct the model are
transferred
as an incidental part of providing this service. The entity which
designs
and constructs the model should pay tax, at the time of purchase, on all
materials used to provide this service. The amount billed the client for
this service is not taxable.

I have forwarded, under separate cover, an application for a sales tax
permit.

This opinion is based upon the facts you presented. If there are addi-
tional or different facts, this 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 Policy Division.

Sincerely,
(Mrs.) Jo Ann Dieck
Tax Policy Division