How did Texas tax sales and moves of used houses, new foundations, customer-owned house moves, repairs, and subcontractor work before attachment to realty?

Plain-English summary

The letter addressed three business models.

Business owns and resells a used house

When the business bought a house, resold it, moved it, and installed a foundation, both the house and moving charges were taxable.

For the foundation, a lump-sum contractor paid tax on foundation materials and did not charge the customer tax on them. Under a separated contract, the customer was charged tax on separately stated foundation materials.

If the business sold a house already installed on a foundation for one lump sum, it did not charge tax on that lump-sum fee but paid tax to the seller when buying the structure. Later repair or remodeling labor on nonresidential property became taxable January 1, but the letter said that change did not affect buildings installed for residential use.

Customer owns the house

When the business only moved a customer's house and installed a foundation, the house-moving fee was nontaxable. For a lump-sum foundation contract, the contractor paid tax on materials and did not charge tax on the lump-sum customer price.

Business constructs a new house

A newly constructed house was not an improvement to realty until set on and attached to the foundation. Labor performed by subcontractors before that attachment was taxable; the subcontractors needed permits and charged tax to the builder.

What this means for you

The historical answers turned on who owned the structure, contract form, residential use, and the exact point when the house became an improvement to realty.

Common questions

Were house and moving charges taxable when the mover owned and sold the house? Yes.

Was moving a customer-owned house taxable? No.

Who paid tax on materials under a lump-sum foundation contract? The contractor.

Was subcontractor labor taxable before the new house was attached to its foundation? Yes.

Citations and references

• 34 Tex. Admin. Code Rule 3.291 — historical contractor rule.
• 34 Tex. Admin. Code Rule 3.306(b)(5) — historical provision cited for structures.
• 34 Tex. Admin. Code Rule 3.285 — sales for resale.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8712L0852B03

Original ruling text

December 21, 1987

Dear *:

Thank you for your recent letter regarding your removal and reattachment of
houses to real property. Your letter is restated in part with responses below.

Facts

I buy houses that are to be removed from property that is being developed. At
the time of purchase from the seller I do not pay any sales tax and if
necessary I supply a sales tax number to the seller. I then resale the houses
and deliver them to the buyers property. I then install a foundation, type as
requested by the buyer, and attached the house to the new foundation. The
attachment of the house to the foundation varies as to the type of foundation
that is installed. Some foundations require nailing of the house to the post
while others do not have any form of attachment due to their type of
construction. This is a standard in the industry and no other form of
attachment takes place at a later time.

In my present contract I separate the moving and foundation from the sale price
of the house. I then charge sales tax on the purchase price of the house and do
not charge any tax on the moving and foundation work. If any materials are
necessary I supply them in the contract price. I then take a payment on the
contract amount with the balance due when the house arrives at the new
location.

QUESTION; DO I NEED TO WRITE TWO SEPARATE CONTRACTS SO AS NOT TO NEED TO
COLLECT SALES TAX ON THE MOVING AND FOUNDATION WORK.

Response: In this situation, your charges for both the house and the moving are
taxable. If you do a lump sum when building the foundation (see Rule 3.291
attached) you may pay tax on your foundation materials at the time of purchase
and not charge tax to the purchaser on the foundation materials. If your
contract with the customer separates your charges for foundation materials and
labor, you must charge tax to your customer on the foundation materials.

QUESTION; IF I MOVE THE USED HOUSES TO THE SITE, INSTALL A FOUNDATION, THEN
CONNECT THE UTILITIES AND REPAIR THE HOUSE HOW SHOULD SALES TAX BE CHARGED.

Response: You may act as either a lump sum or separated contractor under Rule
3.291. The above response primarily addressed your responsibilities as a
contractor performing separated contracts. If you contract to provide a house
on a foundation for a lump sum amount you will not be required to charge tax on
the lump sum fee. However, you will be required to pay tax to the seller of the
structure at the time of purchase. Please refer to rule 3.306(b)(5) and Rule
3.285 attached. Effective January 1, charges for labor to repair or remodel
non-residential real property will become taxable. However, this will not
affect buildings which you install on foundations for use as residences.

In another phase of my operation I move houses from one location to another for
a customer. I at no time am the owner of the house I am only contracting to
move and install to a foundation. I will do no repair to the house and I write
a total contract for the move and foundation. If I supply any material for the
job I pay all sales tax upon the materials at time of purchase, the majority of
the time I do not charge the customer for the material.

QUESTION; IS SALES TAX DUE FOR MOVING OF THE HOUSE FROM ONE LOCATION TO
ANOTHER. QUESTION; SINCE I PAY ALL SALES TAX ON ANY MATERIAL PURCHASED DO I
NEED TO CHARGE THE CUSTOMER FOR THE SALES TAX THAT WAS PAID ON THE MATERIAL.

Response: You will not be required to charge tax on the fee for house moving.
If the foundation is built under a lump sum contract, you would be correct to
pay sales tax on the material purchased and not charge tax to your customer on
the lump sum charge.

In the third phase of my operation I construct new houses for sale and
transport the houses to the new site install a foundation, connect all of the
utilities and turnkey the house to the agreed specifications. I write a total
lump sum contract including all phases of construction. I then receive my money
after the house is completed and accepted by the owner and the funding bank or
savings and loan. This transaction includes deed searches. Mechanics and
materials liens on the work contracted. I presently pay all sales tax on the
material as I purchase it or if I purchase material for my inventory I pay tax
on this material at the time of purchase. I do not charge any sales tax to the
customer in this transaction.

QUESTION; DO I NEED TO PAY TAX TO THE SUB CONTRACTORS USED IN THIS OPERATION OR
IS THEIR WORK NON TAXABLE.

Response: The house is not an improvement to realty until it is set on the
foundation and attached. Therefore, the labor performed by the subcontractors
is subject to sales tax. They would need to have a sales tax permit and charge
you tax.

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 our toll-free
number 1-800-531-5441. The regular number is 512/463-4600. You may write me at
the Tax Policy Division.

Sincerely,
Al Van Allen
Tax Policy Division