Texas Letter Ruling 9211L1202G11: Does a carpet installer collect sales tax on materials under a separated contract?

Plain-English summary

The Texas Comptroller's Tax Administration Division confirmed, in a brief follow-up letter after a phone conversation, that a carpet dealer who sells and installs carpeting in residences under a separated contract is correctly collecting sales tax on the materials portion of the job.

Under a separated contract, the carpet dealer is treated as the seller of the incorporated materials (the carpet itself). That means the dealer should give its supplier a resale certificate when buying the carpet, and then collect sales tax on the separately stated charge for the materials when billing the customer. The separately stated labor charge for installation is not taxed.

The letter notes that copies of the relevant statutory provision and sales tax rule were enclosed for the taxpayer's reference, but does not identify them in the text of the letter itself.

What this means for you

Carpet dealers and flooring installers

If you sell and install carpet in residences and use a separated contract (one that states the materials charge and the labor charge separately), you should give your supplier a resale certificate when purchasing the carpet rather than paying tax on it, and instead collect sales tax from your customer on the separately stated materials charge. Do not collect tax on the separately stated labor charge.

Business owners structuring contracts

The tax treatment here depends on using a separated contract with materials and labor broken out as distinct line items. A lump-sum contract that does not separate these charges could be taxed differently, since the letter specifically addresses the separated-contract scenario.

Accountants and tax professionals

This is a short confirmatory letter, not a detailed policy explanation -- it restates settled Comptroller guidance on separated construction/installation contracts for real property improvements involving carpet. The letter references an enclosed statutory provision and sales tax rule but does not quote or cite them by number in the letter text itself.

Common questions

Q: Do I owe sales tax on the carpet materials I sell and install?
A: Under a separated contract, yes -- you are considered the seller of the incorporated materials and must collect sales tax on the separately stated materials charge.

Q: Do I owe sales tax on my labor/installation charge?
A: No. The letter confirms there is no tax on the separately stated labor portion of a separated contract.

Q: Should I pay tax when I buy the carpet from my supplier?
A: No. Under a separated contract, give your supplier a resale certificate instead of paying tax at purchase, since you'll collect tax from your customer when you resell the materials.

Q: Can I rely on this letter for my own business?
A: This letter was addressed to a specific taxpayer and is based on the facts that taxpayer presented; if your facts differ, the outcome could differ. Under STAR's rules, only the original recipient can rely on it for detrimental-reliance protection.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9211L1202G11

Original ruling text

November 3, 1992

Dear ***:

In our telephone conversation of Friday, October 30, you requested written
verification that it is proper for you to collect sales tax on your charges for
incorporated materials when you sell and install carpeting in residences under
a separated contract. When operating under a separated contract, you are
considered to be the seller of the incorporated materials. You should,
therefore, give your supplier a resale certificate when you buy the materials
and collect tax on the separately stated charge for the materials to your
customer. There is, as you know, no tax on the separately stated labor portion
of the contract.

I am enclosing copies of the relevant statutory provision and sales tax rule
for your reference. I hope this information is helpful to you.

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

If you have any questions, please don't hesitate to write the Tax
Administration Division or call one of our tax specialists toll free at
1-800-252-5555.

Sincerely,

Vic Hinterlang
Tax Administration Division