Texas Letter Ruling 9211L1206C09: Engineering Services — Designs/Blueprints/Specifications Preparations/Reports/Working Drawings — Nontaxable Services

Plain-English summary

The Texas Comptroller ruled that a small engineering firm's building-code compliance study and report is not a taxable service, and that adding working drawings to that report does not change the answer.

The taxpayer's client ran a two-person engineering business (two engineers and a secretary). The engineers would visit a building, review its layout, and take measurements. From that study, they prepared a typed report for the building's owners describing the changes needed to bring the building into compliance with federal, state, and local building codes. Sometimes the report also included working drawings showing the necessary changes. No remodeling or other work on the real property actually took place -- the service was limited to the study and the report itself.

The Comptroller held that this report, even though it wasn't formally a "professional engineering service," was a consultation service. Consultation services are not taxable when provided alone, without any taxable goods or services bundled in. The ruling draws a distinction for tax purposes between professional engineering services and sales of tangible personal property: developing original specifications or producing design services is not taxable, even when the engineer hands over physical working drawings as part of that service.

The Comptroller also noted this answer is based on the specific facts presented, and that different facts -- even if similar -- could lead to a different result.

What this means for you

Engineers and engineering firms

If your service consists of studying a building or project and delivering a report or recommendations (such as a building-code compliance analysis), that service is treated as nontaxable consultation, not a taxable sale of tangible personal property -- even if you include working drawings with the report. The key facts here were that no remodeling or improvement to real property occurred, and the deliverable was the study/report itself.

Business owners and building owners

If you hire an engineer for this kind of compliance study and report (with or without working drawings), you should not expect to be charged Texas sales tax on that service, based on the facts described in this ruling.

Accountants and tax professionals

This ruling illustrates the general Texas Comptroller position that consultation and professional engineering services are treated differently from sales of tangible personal property -- delivering a tangible report or working drawings as part of a consultation service does not, by itself, convert the service into a taxable sale. As always, the Comptroller cautions that different facts could lead to a different answer.

Common questions

Q: Is an engineer's report on building-code compliance a taxable service in Texas?
A: No, according to this ruling. A study and report evaluating whether a building complies with building codes, with recommended changes, is treated as a nontaxable consultation service.

Q: Does including working drawings with the report make it taxable?
A: No. The ruling states that developing original specifications or producing actual design services is not subject to tax even if working drawings are delivered as part of the report.

Q: Would the answer change if the engineers also did remodeling or physical work on the building?
A: This ruling only addresses a pure study-and-report service where no remodeling or improvement to real property occurred. The Comptroller expressly notes that different facts, even if similar, might lead to a different answer.

Q: Can I rely on this ruling for my own business?
A: This letter can be the basis of a detrimental reliance claim only for the taxpayer to whom it was directly issued. It shows how the Comptroller reasoned on these specific facts, but you should confirm your situation with a tax professional or seek your own ruling.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9211L1206C09

Original ruling text

November 16, 1992

Dear ***:

This is in response to your letter dated November 3, 1992, regarding sales tax
as it applies to the service provided by one of your client's new business.

FACT SITUATION: The business consists of two engineers and a secretary. The
engineers go to a building, review the layout and take measurements. From this
study they prepare a report for the owners of the building. The report
discusses the required changes to get the building into compliance with various
federal, state local building codes. The report is typed up and given to the
client. Sometimes the report includes working drawings for the necessary
changes. No remodeling or improvement to real property occurs. The service
consists solely of a study and a report.

QUESTIONS: Is this a taxable service, and does including working drawings with
a report change the taxability?

The answer to both questions is no. Although the report on changes needed to
get the building into compliance with various building codes is not a
professional engineering service, it is a consultation service, which is not
taxable when provided alone (absent the inclusion of taxable goods or
services). For tax purposes, professional engineering services are treated
differently from sales of tangible personal property. Developing original
specifications or producing actual design services are not subject to tax even
if you deliver the working drawings.

This opinion is based on the facts presented. Different facts, though similar,
might lead to different answers. If you have any questions, feel free to write
or call me at 1-800-531-5441, extension 5-330, or 512/463-4600.

Sincerely,

Bettie Peterson