May a scaffolding rental company buy or rent scaffolding tax-free for resale, and is the labor to erect the scaffolding taxable?

Plain-English summary

COMPANY A operates a scaffolding rental division that rents scaffolding to a large industrial customer (COMPANY A's CUSTOMER), and sometimes also arranges to erect that scaffolding for the customer. When COMPANY A doesn't have enough scaffolding of its own on hand, it rents additional scaffolding from another supplier and rerents it to the customer. COMPANY A asked the Comptroller five questions about how sales tax applies to these transactions.

The Comptroller's answers split cleanly along two lines. On the purchasing/renting side, COMPANY A can buy scaffolding tax-free from its supplier, and can also rent scaffolding tax-free from another supplier when it needs extra inventory to rerent -- in both cases by issuing a resale certificate in lieu of paying tax, because COMPANY A is not the end user; it is reselling (renting) the scaffolding onward to its customer. The same logic applies to outside erection labor COMPANY A pays another company to perform: COMPANY A can give that erection company a resale certificate too, since COMPANY A is passing the erection charge on to its own customer.

On the taxability side, though, the labor to erect the scaffolding is taxable no matter what. The ruling states plainly that erection labor is taxable whether it is billed together with a scaffolding rental or billed as a standalone service unconnected to any rental. In other words, the resale-certificate mechanism lets COMPANY A avoid paying tax on its own purchases/rentals of scaffolding and erection services, but COMPANY A must still collect tax from its customer on the erection labor charge itself, regardless of whether that labor accompanies a rental.

The letter is explicitly limited to the facts presented ("Other facts, though similar, may yield different results"), and the underlying request letter shows the ruling arose out of a sales tax audit involving a more complex scaffolding-and-insulation contracting arrangement at an industrial plant, though the Comptroller's response addresses only the five scaffolding rental/erection questions actually restated in the response letter.

What this means for you

Scaffolding and equipment rental companies

If you buy or rent scaffolding (or similar equipment) specifically to rent it back out to a customer, you can issue a resale certificate to your supplier instead of paying tax on that purchase or rental -- this includes situations where you rent additional inventory from another supplier to cover a shortfall and rerent it. But don't extend that same resale logic to erection/installation labor charges you bill to your customer: that labor is taxable to the customer even though your own purchase of the erection service (from an outside erection company) can itself be bought tax-free with a resale certificate.

Contractors and construction-adjacent businesses

The ruling draws a sharp line between the rental of equipment (which can flow through tax-free via resale certificates when it's being resold) and labor to erect or dismantle that equipment (which is taxable regardless of whether it's bundled with a rental or billed separately). Don't assume erection labor becomes nontaxable just because it isn't tied to a specific rental transaction.

Accountants and tax professionals

When auditing or advising a scaffolding/equipment rental business, check whether resale certificates were properly used for both (a) the underlying purchase/rental of the equipment and (b) any outside erection labor the business purchased for resale to its own customer -- while separately confirming that tax was collected on the erection labor charged to the end customer in every case.

Common questions

Q: Can a scaffolding rental company buy scaffolding tax-free if it's going to rent that scaffolding out to a customer?
A: Yes. It can issue a resale certificate to its supplier in lieu of paying tax, because it is reselling (renting) the scaffolding rather than using it itself.

Q: What if the rental company has to rent extra scaffolding from another supplier to cover a shortfall, then rerent it to its own customer?
A: The same rule applies -- it can rent that additional scaffolding tax-free from the other supplier by issuing a resale certificate, since it is rerenting the scaffolding onward.

Q: Is the labor to erect scaffolding taxable if it's part of a scaffolding rental deal?
A: Yes.

Q: Is erection labor still taxable if it's not connected to any scaffolding rental -- for example, billed as a standalone erection service?
A: Yes. The ruling treats erection labor as taxable either way, whether or not it accompanies a rental.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9205L1173B11

Original ruling text

May 26, 1992

Dear ***:

Thank you for your recent letter regarding transactions between COMPANY A and
COMPANY B. The facts in your letter are included by reference. Your questions
are restated with response below.

Question 1: May COMPANY A purchase scaffolding tax free to rent to COMPANY B?

Response 1: COMPANY A may purchase scaffolding tax free by issuing to its
supplier a resale certificate in lieu of tax.

Question 2: May COMPANY A rent scaffolding tax free to rerent to COMPANY B?

Response 2: COMPANY A may rent scaffolding tax free by issuing to its supplier
a resale certificate in lieu of tax.

Question 3: May COMPANY A purchase outside labor tax free to erect scaffolding
to COMPANY B?

Response 3: COMPANY A may give the erection company a resale certificate in
lieu of tax.

Question 4: Is the labor to erect scaffolding taxable if it is in conjunction
with the rental of scaffolding?

Response 4: Yes.

Question 5: Is the labor to erect scaffolding taxable if it is not in
conjunction with the rental of scaffolding?

Response 5: Yes.

This opinion is based on the facts you presented. Other facts, though similar,
may yield different results.

If you have questions or need more information, please call or write. You may
reach me by calling toll free, (800) 531-5441. My direct line number is (512)
463-4680. The number for FAX transmissions is (512) 475-0900. You may write to
me in care of Tax Administration Division.

Sincerely,

Al Van Allen
Tax Administration Division

February 22, 1992

Comptroller of Public Accounts
Tax Policy Division
Capitol Station
Austin, TX 78774

Re: COMPANY A
TP# **

Dear Sir:

The taxpayer referenced above is currently undergoing a sales tax audit by
the ** audit office. We have met with the auditor, supervisor,
and manager regarding the taxability of scaffolding which we rent to COMPANY
A's CUSTOMER. Since our circumstances do not follow any previous cases, we
have been asked to prepare this taxability request.

COMPANY A is composed of seven different divisions. Contracting and
scaffolding are two of these divisions. Our scaffolding division rents
scaffolding to COMPANY A's CUSTOMER, a direct pay permit holder. On large
projects COMPANY A's CUSTOMER has a separate bid process on the scaffolding,
engineering, electrical, repair, and new construction. If COMPANY A is
awarded the job to provide scaffolding, the price to COMPANY A's CUSTOMER
is by the piece per day of use. When COMPANY A's CUSTOMER rents the
scaffolding for a special project, it is for the use of all contractors on
the job including engineers, maintenance, electricians, and COMPANY A's
CUSTOMERS employees.

COMPANY A's CUSTOMER also rents scaffolding from COMPANY A on a day to day
basis for small jobs. A copy of COMPANY A's CUSTOMER's purchase order
approving this is enclosed (Exhibit A). COMPANY A keeps a supply of
scaffolding at COMPANY A's CUSTOMER at all times for this purpose. Each day
a scaffolding report (Exhibit B) is prepared which lists each piece of
scaffolding rented to COMPANY A's CUSTOMER and where in the plant it was
delivered. On occasion when all scaffolding is currently being used by
COMPANY A's CUSTOMER and more is requested, COMPANY A rents additional
scaffolding to rerent to COMPANY A's CUSTOMER (Exhibit C). COMPANY A has
also paid others for the labor to erect the scaffolding at COMPANY A's
CUSTOMER (Exhibit D). COMPANY A's CUSTOMER is then billed for this
erection labor (Exhibit E).

COMPANY A's CUSTOMER accrues tax on all scaffolding rental and an
affidavit indicating this is enclosed (Exhibit F). Also enclosed are
example invoices to COMPANY A's CUSTOMER for the rental of scaffolding
(Exhibits G & H).

[COMPANY A's] [COMPANY A's CUSTOMERS] contract division also bids on
jobs at CUSTOMER. The COMPANY A's CUSTOMER contract division insulates
pipe, equipment, and various parts of the plant. Everything in the plant
which COMPANY A insulates is considered real property. All contracts are
cost plus and detailed time sheets must be submitted to COMPANY A's
CUSTOMER with each invoice. Some jobs are new construction and others
are repairs.

On contract jobs at CUSTOMER [LOCATION], COMPANY A's CUSTOMER contract
division works off of scaffolding rented by COMPANY A's CUSTOMER from
the company that received the scaffolding part of the contract. In some
cases, the scaffolding may be provided by COMPANY C or some other
company. In other cases, the scaffolding is provided by COMPANY A's
scaffolding division.

COMPANY A does not know at the time bids are submitted whether they
will receive the scaffolding part of the contract only, the insulation
part of the contract only, or both parts. In some instances the
scaffolding division will provide scaffolding for two months or longer
prior to the time bids are taken on the insulation part of the job.
COMPANY A's insulation part of the job may take a month to complete
but the scaffolding may continue to be rented by COMPANY A's CUSTOMER
for another two months so that the other contractors can complete their
jobs. In other instances, COMPANY A may do insulation work on a job
prior to the request of any bids for scaffolding.

Currently COMPANY A purchases all scaffolding shipped to CUSTOMER tax
fee. Any scaffolding rented to rerent to COMPANY A's CUSTOMER is also
rented tax free. A resale certificate is issued to the supplier since
they are renting the scaffolding to rerent to COMPANY A's CUSTOMER.

COMPANY A invoices CUSTOMER for scaffolding and insulation separately
because the charges are based on separate contracts. COMPANY A's
CUSTOMER accrues tax on all scaffolding rental and all repair or
remodel insulation jobs. An auditor for the Comptroller is currently
at CUSTOMER so the above can be verified by him.

Please consider the circumstances above and the exhibits attached
and answer the following questions.

1) May COMPANY A purchase scaffolding tax free to rent to COMPANY
A's CUSTOMER?

2) May COMPANY A rent scaffolding tax free to rerent to COMPANY A's
CUSTOMER?

3) May COMPANY A purchase outside labor tax free to erect
scaffolding at COMPANY A's CUSTOMER?

4) Is the labor to erect scaffolding taxable if it is in conjunction
with the rental of scaffolding?

5) Is the labor to erect scaffolding taxable if it is not in
conjunction with the rental of scaffolding?

We appreciate your consideration of this matter and your prompt
reply. If you have any questions or need any additional information,
please do not hesitate to call me at **.

Sincerely,

COMPANY A's REPRESENTATION FIRM
**, CPA