Is installing theater chairs in a new theater taxed the same as removing and replacing chairs in an existing theater?

Subject

Chairs — Installation In Newly Constructed Theater Is Nontaxable New Construction, But Removal And Reinstallation In An Existing Theater Is Taxable Remodeling

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9312L1274C03

Plain-English Summary

A taxpayer's client installs theater chairs by (1) drilling the holes, (2) setting the expansion bolt, (3) setting the frame, (4) attaching the back, and (5) attaching the seat. The client does not own the chairs. Most of the time the chairs are being installed for the first time, but on occasion the client instead removes existing chairs and installs new ones. The taxpayer asked the Comptroller whether these installation steps are subject to Texas sales tax.

The Comptroller drew a line based on the condition of the theater:

• Installing chairs for the first time in a newly constructed theater is not taxable. The Comptroller characterized this as the client performing a nontaxable improvement to realty.
• Removing existing chairs and installing new ones in an existing theater is taxable, because the Comptroller classified that work as remodeling of nonresidential real property under Rule 3.357.

The letter notes the opinion is based on the facts presented and could change if the facts are different.

What This Means For You

If you install seating (or similar fixtures) in a brand-new building as part of its original construction: This letter treats that first-time installation as a nontaxable improvement to realty — the same installation steps (drilling holes, setting bolts, setting the frame, attaching back and seat) are not taxed when done in a newly constructed theater.

If you remove and replace existing seating in a building that's already in service: The identical physical installation steps become taxable once they're performed as part of removing and replacing chairs in an existing theater, because the Comptroller classifies that as remodeling of nonresidential real property under Rule 3.357 — not new construction.

The determining fact is the state of the building, not the installation technique. The same five-step chair-installation process is nontaxable in a new theater and taxable in an existing one; what changes the answer is whether the work is part of original construction or part of remodeling/replacing existing fixtures in a building that already exists.

Q&A

Q: Is installing theater chairs in a newly built theater subject to Texas sales tax?
A: No. The Comptroller ruled that installing theater chairs for the first time in a newly constructed theater is a nontaxable improvement to realty.

Q: Is removing old theater chairs and installing new ones in an existing theater taxable?
A: Yes. The Comptroller ruled that this is taxable as remodeling of nonresidential real property under Rule 3.357.

Q: Does the taxability depend on who owns the chairs?
A: The letter notes the client does not own the theater chairs, but the Comptroller's stated reasoning turns on whether the theater is newly constructed (nontaxable improvement to realty) versus existing (taxable remodeling) — not on chair ownership.

Q: What installation steps were described in the ruling?
A: Drilling the holes, setting the expansion bolt, setting the frame, attaching the back, and attaching the seat.

Original ruling text

December 9, 1993

Dear **:

In your letter of December 2, 1993, you asked if the following steps
for installing theater chairs is subject to Texas sales tax:

1. Drill the holes
2. Set the expansion bolt
3. Set the frame
4. Attach the back
5. Attach the seat

Your client does not own the theater chairs. Most of the time the
chairs are installed for the first time, but on occasion
the chairs are removed and replaced.

The installation of the theater chairs in a newly constructed
theater is not taxable. In this instance, your client is performing
a nontaxable improvement to realty.

On the other hand, when your client removes and installs new
theater chairs in an existing theater, the service is taxable as
remodeling of nonresidential real property (Rule 3.357).

The opinion is based upon the facts presented. If there are
additional or different facts, the opinion may change.

If you have any questions, please call 1-800-252-5555 toll free
or our direct number is 512/4634600. My direct number is
512/475-0892. You may write me at Comptroller of Public
Accounts, Tax Administration Division, Austin TX 78774-0100.

Sincerely,

John J. Fitzgibbons
Tax Administration

NOTE: Previous Accession Number 9311127L.2 and/or 9311127L