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Ezel / Tax Rulings / TX
TX 8801L1028G13 Sales and/or Use Tax (State,Local,MTA) 1988-01-14

Was finish-out redone for the first actual tenant taxable after an owner had already completed speculative finish-out before leasing the space?

Short answer: Yes. The Tax Policy Committee concluded that once speculative finish-out had been completed, later modifications for the actual tenant were taxable.

Apply this to your situation

This page answers the general question as of 1988. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1988
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is a January 1988 Texas Comptroller Executive Counsel response reporting a Tax Policy Committee decision. It does not include the usual fact-change caveat, legal citation, or letter-ruling reliance language. The conclusion is limited to an owner completing speculative finish-out before finding a lessee and then redoing that work for the first actual tenant. Finish-out, new-construction, remodeling, landlord, tenant, lease, and commercial-real-property rules may have changed; verify current law. STAR documents may no longer represent current policy even when not marked superseded. The commenter is redacted. This summary is informational only and is not legal or tax advice.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page) is the authoritative source for any reliance.

Plain-English summary

An owner completed speculative tenant finish-out before finding a lessee. Once a tenant was found, the owner often had to redo the space to meet the tenant's actual requirements.

The Tax Policy Committee concluded that once the first finish-out was completed, any later modifications were taxable. The finish-out redone for the actual tenant was not treated as part of new construction.

What this means for you

Under this historical policy, completing speculative improvements used up the new-construction treatment; tenant-specific rework afterward was remodeling.

Common questions

Was the first tenant's redo treated as new construction? No.

Was the tenant-specific redo taxable? Yes.

Citations and references

The response cites no numbered statute or rule.

Source

Original ruling text

Bob Bullock
Comptroller of Public Accounts
Austin, Texas 78774

January 14, 1988

Dear **:

On January 7, 1988 you sent a letter to Mr. Bullock concerning
speculative finish out and the application of the new sales tax
on remodeling.

You set out the situation in which an owner does speculative
tenant finish out on a floor prior to a lessee being found.
Once a lessee is found it is very often necessary to redo the
finish out to meet the actual tenant requirements. Your ques-
tion was whether or not the finish out for the first tenant
could be considered part of the new construction.

The tax policy committee discussed this issue and concluded once
finish out was made any further modifications would be taxable.

Therefore, if an owner did speculative finish out and, thereaf-
ter, redid the finish out for an actual tenant the finish out for
the new tenant would be taxable.

Should you have any further questions, please feel free to contact
me.

Sincerely,
Wade Anderson
Executive Counsel

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