Is the labor to install, connect, and calibrate store refrigeration/freezer display units subject to Texas sales tax?

Plain-English summary

A taxpayer asked the Comptroller's office to follow up on an earlier question about installing refrigeration/freezer display units in a retail store. Each unit is a self-contained system (like an oversized home refrigerator), with its own cooling coils, fans, and blowers. The units get bolted together side by side for stability and appearance, and an installer connects copper tubing from the compressor to the coils, connects a drain line to the store's sewer system, plugs the unit in, levels it, and calibrates the thermostat.

The Comptroller drew a distinction based on how the compressor setup works:

• Shared compressor: If the taxpayer orders several units and has the manufacturer install one large (25 HP) compressor that serves the whole line of units as a single refrigeration stream, then wiring/connecting those units together is taxable assembly labor — because the individual units can't function at all until they're connected into that shared system.
• Individual compressors: If each unit instead has its own built-in compressor and the units are simply bolted together for stability, then connecting the tubing and bolting the units together is nontaxable installation labor, since each unit already works on its own.

Regardless of which setup is used, two other charges are always taxable: calibrating the thermostat (taxable repair/maintenance labor) and installing the decorative facade (taxable remodeling labor). The ruling also warns that if the taxable labor (assembly/repair/remodeling) isn't separately itemized on the invoice from the nontaxable installation labor, the entire charge becomes taxable.

What this means for you

Businesses installing store display refrigeration/freezer units

Whether your installer's connection work is taxed depends on the compressor configuration you choose. A single shared compressor across multiple units makes the connection work taxable assembly labor; individual built-in compressors per unit make the same connection work nontaxable installation labor. Either way, thermostat calibration and any facade/remodeling work are taxable, so plan your invoicing accordingly.

Contractors and installers who bill for this work

Make sure your invoices separately state the taxable charges (assembly labor if using a shared-compressor system, plus calibration and facade/remodeling labor) from the nontaxable installation labor. Lumping everything into one undifferentiated charge makes the whole bill taxable.

Accountants and tax professionals

This is a facts-and-circumstances labor-classification ruling with no statute cited in the letter itself — the Comptroller reasoned purely from how the physical installation works (shared vs. independent compressors) to sort connection labor into assembly (taxable) vs. installation (nontaxable) categories, while treating calibration and facade work as taxable regardless.

Common questions

Q: Is the labor to bolt refrigeration display units together taxable?
A: It depends on the compressor setup. If the units share one central compressor as a single refrigeration stream, connecting them together is taxable assembly labor. If each unit has its own built-in compressor, bolting/connecting them for stability is nontaxable installation labor.

Q: Is calibrating the thermostat on these units taxable?
A: Yes. The letter states calibrating the units is taxable maintenance or repair labor, regardless of the compressor configuration.

Q: Is installing the facade on the units taxable?
A: Yes. The letter states the labor to install the facade is taxable remodeling labor.

Q: What happens if the taxable and nontaxable labor charges aren't broken out separately?
A: The letter warns that the charges for the taxable labor must be separately stated from the installation labor, or the total charge will be taxable.

Q: Can I rely on this letter for my own installation project?
A: No. This letter was issued to one taxpayer based on the specific facts they described about their refrigeration units. It shows how the Comptroller's office reasoned through a similar setup, but it doesn't bind the Comptroller as to anyone else's installation.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9305002L

Original ruling text

May 7, l993

Dear **:

Thank you for the additional information regarding the installation of
refrigeration units. The facts you presented and our response are as follows:

FACTS: The refrigeration/freezer units previously addressed are basically
independent units which are totally self-contained, as one's refrigerator at
home--only a much larger scale. These units/cases are bolted together for both
stability and aesthetic purposes. A single compressor contained in the
unit(s)/case(s) may run one large unit/case or multiple smaller units/cases.
There is no assembly or fabrication performed by the installer. The installer
merely places the units in place, bolts them together, connects copper tubing
from the in-place compressor to the "refrigeration/freezer" coils, connects
copper tubing from the drain plug(s) to the stores existing sewer systems and
plugs the unit into an electrical outlet. He levels the unit(s)/case(s), checks
the operation, calibrates the thermostat for desired temperature, and thus
completes the installation.

For clarity, there are no compressors located on the roof of the store required
for operation. This was a misinterpretation of the facts. These are totally
self-contained units/cases with their independent cooling systems consisting of
fans and blowers which also are self-contained within the unit(s)/case(s).

As I understand from our telephone conversation, your client may order a number
of units and have the manufacturer install a single 25 HP compressor in one
unit that will be a part of the refrigeration stream rather than in each
individual unit. Your client may also order individual units each with its own
built in compressor.

R E S P O N S E: When the units are connected into a stream to operate off the
one compressor, the set up of the stream is assembly labor. The individual
units will not operate unless they are connected to the unit with the
compressor. Therefore, the "installer" is assembling several units together to
form a single refrigeration unit. The labor to install the facade is taxable
remodeling labor. The labor to calibrate the units is taxable maintenance or
repair.

When individual units each with their own built in compressor are set up, the
labor to connect the tubing and to bolt the units together for stability is
installation labor. The labor to install the facades is taxable remodeling
labor. The labor to calibrate the units is taxable maintenance or repair labor.
The charges for the taxable labor must be separately stated from the
installation labor or the total charge will be taxable.

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 additional information, you may call me toll
free at 1-800-531-5441, extension 34666. You may write to Tax Administration
Division.

Sincerely,

Jo Ann Dieck
Tax Administration Division