How did Texas tax HVAC new construction, commercial remodeling, residential work, and window-unit sales and service under different contract types?

Plain-English summary

For commercial or residential new construction, contract type determined who paid tax on materials. Under a lump-sum contract, the HVAC business paid tax to its supplier on material cost. Under a separated contract, it bought materials for resale and collected tax from the customer on the material sales price.

Commercial repair or remodeling was taxable on the total charge regardless of contract type, and materials could be bought for resale. Residential repair or remodeling followed the contractor treatment used for residential new construction.

Window air conditioners remained tangible personal property after installation. Their sale and installation were taxable on the total charge in commercial and residential settings, and the letter said their maintenance contracts were taxable under Rule 3.292.

What this means for you

Under the 1988 guidance, central-system real-property work depended on construction type, property use, and contract format. Window units followed taxable tangible-personal-property treatment instead.

Common questions

Who paid tax on lump-sum new-construction materials? The HVAC business paid the supplier on cost.

What happened under a separated new-construction contract? The business bought materials for resale and taxed their customer sales price.

Was commercial repair or remodeling taxable? Yes, on the total charge.

Were window-unit sales, installation, and maintenance taxable? Yes.

Citations and references

• 34 Tex. Admin. Code Rule 3.291, applied to new-construction contractor treatment.
• Rule 3.357, applied to commercial repair or remodeling.
• Rule 3.292, exactly as printed for window-unit maintenance contracts.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8803L0865B04

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

March 15, 1988

Dear *:

Thank you for your recent letter concerning your responsibility for
collecting and reporting sales taxes on labor and parts as a heating and air
conditioning contractor.

There are several factors which must be considered when work is performed
on real property by your type business. Applicable Rules and brochures are
attached.

New Construction

Commercial - The type of contract with your client determines who is
responsible for paying taxes on materials. If the contract is lump sum (a
single amount) you must pay tax on the cost of the materials to your supplier
at the time of purchases. If the contract separates the charges for materials
and labor, tax is to be collected from your customer on the sales price of the
materials only. These materials may be purchased tax-free under a resale
certificate. Please refer to Rule 3.291.

Residential - same as commercial above.

Repair and/or Remodeling

Commercial - Your total charge is taxable. It is immaterial if the
contract type is lump sum or separated. The materials used may be purchased
under a resale certificate. Rule 3.357 applies.

Residential - same as "residential" under "new construction" above.

If you sell and install window type air conditioners, either commercial
or residential, the total charge to your customer is taxable. Window air
conditioners remain tangible personal property after installation. Maintenance
contracts for these type units are also taxable under Rule 3.292.

You also asked if tax on parts and equipment can be paid at the time of
purchase from the wholesaler. If you are responsible for payment of tax based
on the cost of materials, you must pay tax at the time of purchase. If you are
to collect tax from your customer, you should buy the items tax-free and then
collect the tax on the retail sales price.

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,
(Mrs.) Jo Ann Dieck
Tax Policy Division