Was labor to install a separately purchased, nonpermanent air compressor taxable in Texas?

Plain-English summary

A company bought an air compressor and hired a different company to install it at a Texas plant. The installer did not sell the compressor. The taxpayer also stated that the compressor was not permanently attached to the land or building.

The Comptroller said the installation charge should not be taxed on those facts. Installation labor is taxable when connected with the installer's sale of tangible personal property or its performance of another taxable service. But labor by a genuine third-party installer—someone who neither sold the property nor provided a taxable service—was not taxable.

The result also depended on what the installation accomplished. Because the compressor was not permanently affixed, the work did not appear to be nonresidential repair or remodeling. And because the installation was not part of repairing or remodeling another item of tangible personal property, it did not become taxable on that ground either.

What this means for you

Equipment buyers

Separately hiring an installer can produce a different tax result from buying equipment and installation together. This letter's result depended on the installer being independent of the sale and on the work not being a taxable repair or remodeling service.

Installers and tax professionals

The phrase “installation labor” is not enough to determine taxability. Check whether the installer sold the item, whether the item became part of realty, and whether the work repaired or remodeled existing tangible personal property.

Common questions

Why was the compressor installation not taxable? The installer did not sell the compressor, the compressor was not permanently affixed to realty, and the work was not part of repairing or remodeling other tangible personal property.

Is installation labor taxable when the seller performs it? The letter said installation labor connected with a sale of tangible personal property is taxable.

Can third-party installation still be taxable? Yes. The letter's protection did not apply if the work itself was a taxable service, including repair or remodeling on the relevant facts.

Citations and references

The letter cited no specific statute or rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9203L1170A01

Original ruling text

March 6, 1992

Dear **:

Thank you for your letter regarding the application of sales tax to third party
installation labor.

You stated that your company purchased an air compressor that was installed at
your plant in CITY, Texas, by COMPANY. COMPANY did not sell the air compressor
to your company. COMPANY charged tax on the third party installation labor even
though, based upon your letter, the air compressor is not permanently affixed
to the land or structure.

The charge for installation labor connected with the sale of tangible personal
property or the performance of a taxable service is taxed. The charge for
installation labor performed by a third party (not the seller of the tangible
personal property being installed nor a taxable service provider) is not taxed.
Based upon your statements, COMPANY appears to be a third party installer.

Also based upon your statements, it appears the installation of the air
compressor at your plant in CITY is not a nonresidential repair or remodeling
service, because it is not permanently affixed to the realty. And, as long as
the installation is not part of a repair to or remodeling of another item of
tangible personal property, the installation provided by COMPANY should not be
taxed.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

You may also write to Tax Administration Division, Comptroller of Public
Accounts.

Sincerely,

Tax Administration Division