How did Texas tax water conditioning when the provider retained equipment control, sold and plumbed equipment, or performed scheduled maintenance?

Plain-English summary

When control of water-conditioning equipment did not pass to the customer, the Comptroller treated the conditioning as a nontaxable service.

When a customer bought the equipment, control passed to the customer, and equipment plumbed into the building became an improvement to realty. Installation in a residence or in a nonresidential building during original construction under the general contractor followed Rule 3.291 contractor treatment. Plumbing sold equipment into an existing nonresidential building was taxable remodeling on the total charge under Rule 3.357.

Regularly scheduled service of customer-owned units was nontaxable real-property maintenance when the provider kept schedules in its records. The provider paid tax on salt and resin incorporated during that maintenance.

What this means for you

The 1988 result depended on control, ownership, building status, and whether later work was documented scheduled maintenance.

Common questions

Was provider-controlled conditioning taxable? No.

Did sold, plumbed equipment become real property? Yes.

Was installation in an existing commercial building taxable? Yes, on the total charge.

Was scheduled maintenance taxable? No, but the provider paid tax on salt and resin.

Citations and references

• 34 Tex. Admin. Code Rule 3.291, applied to contractor work.
• Rule 3.357(a)(3), applied to scheduled maintenance; Rule 3.357 also governed remodeling.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8802L0875F11

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TEXAS 78774

February 5, 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.

I am enclosing an edited copy of a letter discussing the taxability of
the portable exchange system and the automatic service system. The
element of control is very important. Because control of the equipment
does not pass to the customer, the water conditioning is treated as a
nontaxable service.

When a customer purchases water conditioning equipment, control of the
equipment passes to the customer. When the equipment is plumbed into the
building it becomes an improvement to realty.

If the water conditioning equipment sold is plumbed into a residence or
into a non-residential building at the time it is constructed and you act
under the authority of the general contractor, you will be treated as a
contractor under the enclosed Rule 3.291.

If the water conditioning equipment sold in plumbed into an existing
non-residential building, the work will be treated as remodeling, under
Rule 3.357 enclosed. As such, the total charge will be subject to sales
tax.

It appears from your letter that you service the units you sell on a
regularly scheduled basis. If this is the case and you maintain sched-
ules in your records, we would treat you as maintaining real property as
described in Rule 3.357(a)(3). As such, your charges will not be tax-
able. However, you would pay tax on all your purchases of salt and
resin incorporated into customer owned units during maintenance.

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