When a sign company designs, manufactures, and installs signs, when is the job treated as an improvement to realty versus a sale of tangible personal property, and how does that affect sales tax?

Subject

Sign — Sale And Installation Vs. Improvement To Realty

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9306023L

Plain-English Summary

A sign company asked the Comptroller how sales tax applies to the design, manufacture, and installation of various types of signs it attaches to buildings or other real property under construction — whether during initial construction, as a later addition, or as a replacement to an existing sign.

The Comptroller explained that, generally, most signs have been treated as real property since May 1988, under the definition of real property in Rule 3.347 (Improvements to Realty). When signs that are real property are installed during construction of a new building, Rule 3.291 applies, and the sign company may act as either a separated contractor or a lump-sum contractor — even switching between the two with different customers, though the tax consequences differ. As a separated contractor billing materials and labor separately, the labor charge is not taxable. As a lump-sum contractor billing one combined amount, the company must pay tax on all materials at the time of purchase and does not bill any tax to the customer; tax and profit are folded into the lump-sum charge.

The letter also addresses several specific scenarios: providing only a lifting/placement service for a sign sold by another company is a nontaxable third-party transportation service (Rule 3.303); a sale delivered by the company itself to an address outside Texas is not subject to Texas sales tax if the billing invoice documents the out-of-state delivery; and billboard rental charges are not taxable, though the company owes tax on taxable items it uses to perform that nontaxable rental service.

Because the taxpayer's letter did not specify a particular sign type, the Comptroller listed seven categories of signs considered improvements to realty: ground or pylon signs; signs attached to existing pylon structures; sign cabinets embedded with led shields (usually bolted); angle iron sign structures welded to building structures; angle iron sign frames or cabinets bolted to a wall or facial board; vinyl or plastic signs epoxied or glued to building structures; and neon tubing applied to mirrors or wall panels. For these, fabrication labor is not taxable when installed as part of finish-out work on a newly constructed building (Rule 3.291 controls). However, the total charge becomes taxable as real property repair or remodeling if a sign is later added to an existing improvement, or an existing sign is replaced, or a sign is removed, repaired/remodeled, and reinstalled at the same location — effective January 1, 1988, under Rule 3.357.

By contrast, replaceable sign panel inserts are tangible personal property, and the total charge for taking a panel down, changing the message, and reinstalling it in the same location is taxable. Clearance bars and banners (merely attached to cables or ropes) and pole signs such as "For Sale" signs stuck in the ground or set in holes filled with dirt or sand are also tangible personal property, and labor to repair or remodel them is taxable under Rule 3.292.

The letter closes by noting the opinion is based on the facts presented and that different, even similar, facts may produce a different answer.

What This Means For You

Identify whether your sign is realty or personal property first. The tax treatment turns on how the sign is attached and used. Ground/pylon signs, welded or bolted structures, and glued/epoxied signs are improvements to realty. Replaceable panel inserts, clearance bars, banners, and pole-in-the-ground signs (like "For Sale" signs) are tangible personal property.

Choose your contracting method deliberately for realty signs. If your sign qualifies as an improvement to realty and is installed during new construction under Rule 3.291, you can bill as a separated contractor (materials taxable, labor not taxable) or a lump-sum contractor (you pay tax on materials at purchase, no tax billed to the customer). You can use different methods with different customers, but you need to understand the tax consequences of each before doing so.

Watch the difference between new construction and later work. Fabrication labor for a realty-type sign installed as part of finish-out on new construction is not taxable, but adding a sign to an existing building, replacing an existing sign, or removing/repairing/reinstalling a sign at the same location is taxable as real property repair or remodeling.

Services like lifting, transport, and rental have their own rules. Merely lifting into place a sign sold by someone else is nontaxable third-party transportation (Rule 3.303). Delivering your own sign to an out-of-state address (with invoice documentation) is not subject to Texas sales tax. Billboard rental charges are not taxable, but you still owe tax on taxable items you use to perform that rental service.

Q&A

Q: Are signs generally treated as real property or as tangible personal property in Texas?
A: Generally, most signs are treated as real property (since May 1988), per the definition in Rule 3.347, Improvements to Realty — though the letter goes on to identify specific categories that are tangible personal property instead.

Q: What's the tax difference between a separated contractor and a lump-sum contractor installing a realty sign?
A: A separated contractor bills materials and labor separately, and the labor charge is not taxable. A lump-sum contractor bills one combined amount, must pay tax on all materials at the time of purchase, and does not bill any tax to the customer — tax and profit are included in the lump-sum charge.

Q: If I only lift a sign into place that was sold by another company, is that taxable?
A: No. Providing only that lifting/moving service is not taxable, as it is considered third-party transportation under Rule 3.303 on transportation and delivery charges.

Q: Which types of signs does the letter list as improvements to realty?
A: Ground or pylon signs; signs attached to existing pylon structures; sign cabinets embedded with led shields (usually bolted); angle iron sign structures welded to building structures; angle iron sign frames or cabinets bolted to a wall or facial board; vinyl or plastic signs epoxied or glued to building structures; and neon tubing applied to mirrors or wall panels.

Q: Is fabrication labor for these realty-type signs always tax-free?
A: No — it is not taxable only when the sign is installed as part of finish-out work on a newly constructed building (Rule 3.291 controls). If a sign is later added to an existing improvement, an existing sign is replaced, or a sign is removed and repaired/remodeled and then replaced at the same location, the total charge is taxable as real property repair or remodeling (effective January 1, 1988, under Rule 3.357).

Q: Are replaceable sign panel inserts, banners, or "For Sale" pole signs treated the same as bolted or welded signs?
A: No. Replaceable sign panel inserts, clearance bars and banners, and pole signs (such as "For Sale" signs) stuck in the ground or set in holes filled with dirt or sand are tangible personal property, not improvements to realty, and labor to repair or remodel them is taxable (Rule 3.292 controls).

Original ruling text

June 28, 1993

Dear **:

This is in response to your letter dated June 4, 1993, regarding sales tax as
it applies to the design, manufacture and installation of various types of
signs.

Your letter was written on behalf of a client who attaches signs to buildings
or other real property under construction. The signs are installed during
initial construction, as a later addition, or as a replacement to an existing
sign.

Generally, most signs are treated as real property (since May 1988). Section
(a)(2) of the enclosed Rule 3.347, Improvements to Realty, provides the
definition of real property for the administration of sales/use tax.

Rule 3.291 should be followed when signs that are real property are installed
during construction of a new building. Under this rule, your client may operate
either as a separated or a lump-sum contractor at any given time. Your client
may operate as a lump-sum contractor with one customer and as a separated
contractor with another; however, since the tax consequences are different,
your client should become thoroughly familiar with the rule.

When a sign company acts as a contractor and gives the customer separated
charges for materials and labor, the charge for labor is not taxable.

When a sign company acts as a contractor and bills the customer a single amount
for materials and labor, it is considered to be a "lump-sum" contractor. That
means that your client must pay tax all materials at the time of purchase and
he will not bill any tax to the customer. All costs, including the tax and
profit are included in the lump-sum charge.

Providing a service only to a customer, such as lifting a sign into place that
was provided (sold) by another company is not taxable, if moving the sign is
all that is being done. This will be considered third party transportation. See
Rule 3.303 on transportation and delivery charges.

When your client makes a sale to a customer in Texas and delivers the sign
(himself) outside Texas, Texas sales tax is not due. The billing invoice
showing the sign was delivered to an address outside Texas is sufficient
documentation. A charge for the rental of a billboard is not taxable; however,
your client owes tax on all taxable items used to perform the nontaxable
service.

Providing a definite answer regarding the taxability of a sign is difficult, if
not impossible, without knowing the type of sign. Your letter did not mention
any particular type of sign; therefore, I am providing the information below
that may be useful to you. If you find it necessary, you may send me another
letter regarding specific signs and I will be happy to address each one.

The following type of signs are considered to be improvements to realty:

1. Ground signs or pylon signs.

2. Signs attached to existing pylon structures.

3. Sign cabinets embedded with led shields; usually attached with large bolts.

4. Angle iron sign structures welded to building structures.

5. Angle iron sign frame or sign cabinet bolted on a wall or facial board.

6. Vinyl or plastic sign epoxies or glued to building structures.

7. Neon tubing applied to mirrors or wall panels.

Because the signs listed above are improvements to realty, fabrication labor
will not be taxable when they are installed as part of finish-out work on a
newly constructed building. Rule 3.291 is controlling.

The total charge is taxable as real property repair or remodeling if:

-- a sign is subsequently added to an existing improvement to realty,

or

-- an existing sign is replaced, or ¨ a sign is removed and repaired or
remodeled and then replaced at the same location.

This was effective January 1,1988 and Rule 3.357 controls.

Replaceable sign panel inserts are treated as tangible personal property. The
total charge for taking a sign panel down, changing the message, and
reinstalling it in the same location is taxable.

Clearance bars and banners are tangible personal property as they are merely
attached to cables or ropes. Pole signs, such as "For Sale" signs, that are
stuck in the ground or placed in holes that are filled with dirt or sand are
personal property. Labor to repair or remodel these signs is taxable. Rule
3.292 controls.

This opinion is based on the facts presented. Different facts, though similar,
may result in different answers. If you have any questions or need more
information, please write or call me at 1-800-531-5441, extension 50330, or
512-475-0330.

Sincerely,

Bettie Peterson
Tax Administration Division