How did Texas tax a sign company's freight, artwork, crane lifts, lot shredding, real-estate signs, and pylon-sign work in 1988?

Plain-English summary

The Comptroller gave the sign business a service-by-service answer:

• Freight connected with a taxable sale was taxable.
• Artwork was normally taxable, although the letter invited more facts for a definitive answer.
• Merely lifting air-conditioning units was not taxable if the business neither sold nor installed the units.
• Shredding real-estate lots had become a taxable real-property service on October 1, 1987.
• Sales of real-estate signs were taxable.

For a new pylon and sign embedded in concrete, the seller was treated as a contractor improving real property. Under a separated contract, tax applied to the materials but not the separately stated labor. Under a lump-sum contract, the contractor paid tax on the material cost and did not collect tax from the customer.

Attaching a sign to an existing pylon was fully taxable remodeling. Later repair or replacement of the pylon sign was also fully taxable.

What this means for you

The historical result depended on what was sold, whether the structure already existed, and whether a new real-property contract separately stated materials and labor. The letter did not give an unconditional artwork ruling because the facts were incomplete.

Common questions

Were crane lifts taxable? Not when the business only lifted an air-conditioning unit and did not sell or install it.

Was a brand-new embedded pylon treated like a retail sign sale? No. It followed the letter's contractor rules for improving real property.

What if a sign was attached to an existing pylon? The entire charge was taxable as remodeling.

Were later pylon-sign repairs taxable? Yes, on the total charge.

Citations and references

• 34 Tex. Admin. Code Rule 3.291 — cited for the new-pylon contractor treatment.
• 34 Tex. Admin. Code Rule 3.357 — cited for remodeling an existing pylon.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8802L0866F04

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TX 78774

February 4, 1988

Dear *:

On behalf of Mr. Bullock, I hope you'll accept my apology for the delay
in
answering your question involving changes in the sales tax law. This
isn't
the way we normally do business.

Our people were, and still are, swamped by a deluge of inquiries as they
attempted to interpret provisions of the new law and draft rules which
would
not adversely impact businesses. In many instances, an answer to a
question
just wasn't available when the question arrived.

Your letter is restated with responses below.

After speaking with Jimmy Starr at the office of the Comptroller of
Public Accounts-Enforcement Office in Victoria, Texas he recommended
that I write your office a letter regarding what services relating to
our business are taxable as of October 1, 1987.

Freight:

Response: Charges for transportation in connection with a taxable
sale have
been taxable for some time. I am enclosing our most current rule on
transportation for your reference.

Artwork: providing labor to layout sign designs for customers; i.e.:
blueprints.

Response: Charges for artwork are normally taxable. If you would
like to
submit a more complete fact situation, I'd be happy to give you an
answer.

Crane lifts: lifting air conditioning units.

Response: Charges for lifting air conditioning units are not
taxable if you
are not selling or installing the unit.

Shredding lots: shredding real estate land lots.

Response: This became taxable October 1, 1987, as a real property
service.

Selling of Real Estate signs or 4' x 8' wooden and installed signs. We
have been charging sales tax on this type sign all along.

Response: You are correct in charging tax on these.

We also submit a proposal contract to manufacture and erect large
identification signs. We have normally paid sales tax on all material
used on the finished installed sign. Should we be charging tax on the
labor on a sign such as this? If so, is it correct that we should not
pay the sales tax on the material, but simply charge sales tax on the
labor and the material to the customer?

Response: As we discussed, you are referring to pylon signs which have
bases
which are embedded in the realty and concreted in. This area can be
complex
so I'd like to give you some principals to guide you.

When you initially sell and attach a new (not a replacement) pylon and
sign, you will be treated as a contractor improving real property. You
will assess tax on your materials but not on your labor charges if you
separate them in the contract. If you do a lump sum contract, you
would pay tax on your cost of materials used but not charge tax to you
customer. You would recoup all of your costs and profit in your lump
sum charge. I am enclosing Rule 3.291 for your reference.

If you manufacture and attach a sign to an existing pylon, the entire
charge will be taxable as remodeling. Please refer to Rule 3.357
(enclosed).

When the sign on pylon later needs repair or replacement, the total
charge will be taxable.

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