Are charges for assembling or erecting an above-ground swimming pool taxable in Texas, and does it matter whether a third-party installer does the work?

Plain-English summary

The Texas Comptroller's Tax Policy Division answered a seller of above-ground swimming pools who asked about the taxability of third-party installation charges. The seller's firm doesn't install the pools itself — sales brochures list installation charges as due to a separate, third-party installer, and on some jobs the firm bills the customer an "installed" price and pays the installer directly on the customer's behalf.

The Comptroller drew a key distinction. A true "installation" for sales tax purposes means placing tangible personal property in position, without changing its form, so it can accomplish its purpose — and charges for that kind of third-party installation are not taxable (separately stated parts or materials used in the installation are still taxable, though). But if the "installer" is actually assembling or erecting the unit — connecting component parts into a finished product — that installer is performing the final stage of the manufacturing process, and all charges for that assembly or erection are taxable. Above-ground pools, the letter says, are "no doubt assembled on site," and that assembly is taxable processing labor because the installer isn't affixing the pool in a way that creates an improvement to real property (unlike, for example, an in-ground pool built into the land).

Applying this to the firm's actual practice: because the firm bills customers an "installed" price and pays the third-party installer itself, the installer is acting as the firm's subcontractor on those jobs, and the Comptroller confirmed the audit office was correct that these charges are taxable in full. The firm could instead issue a resale certificate in lieu of tax to the third-party installer. The letter also addressed a proposed billing arrangement — where the firm would collect the full contract amount from a finance company and cut a check to the customer, who would then pay the installer — and concluded that restructuring the payment flow this way doesn't change the taxable basis or save any tax, because a third-party installer assembling tangible personal property must still either collect tax or accept a resale certificate in lieu of tax.

What this means for you

Sellers or installers of above-ground pools (or similar pre-fabricated units)

If your product is assembled or erected on-site from component parts — rather than simply set in place — that assembly labor is taxable "processing" labor, not exempt installation labor, regardless of who performs it or how the invoice is worded. Above-ground pools are treated this way because they aren't affixed to real property as an improvement to realty.

Businesses that use third-party installers or subcontractors

If you bill your customer an "installed" price and then pay a third-party installer yourself, that installer is functioning as your subcontractor, and the full charge to your customer is taxable. You can avoid double taxation on the subcontractor relationship by issuing a resale certificate in lieu of tax to the installer, but the tax is still ultimately due on the full amount charged to the end customer.

Businesses restructuring payment flows through a finance company

Rerouting funds — for example, collecting the contract amount from a finance company and paying the customer, who then pays the installer — does not reduce or eliminate the tax owed. The Comptroller treated the full contract/finance amount as the taxable basis regardless of how payments are routed among the parties.

Common questions

Q: Is a charge for installing tangible personal property taxable in Texas?
A: Not by itself. "Installation" — placing property in position without changing its form so it can serve its purpose — is not taxable. But separately stated charges for parts or materials used in the installation are taxable.

Q: Is assembling an above-ground pool the same as "installing" it?
A: No. According to this letter, assembling or erecting component parts into a finished product (like an above-ground pool) is the final stage of manufacturing, and all charges for that assembly/erection are taxable.

Q: Why does it matter that the pool is above-ground rather than in-ground?
A: The letter reasons that the assembly is taxable because the installer isn't affixing the pool in a way that creates an improvement to real property — implying the analysis could differ for something permanently affixed to realty.

Q: If I hire a third-party installer and bill my customer an "installed" price, who owes the tax?
A: Per this letter, the third-party installer is acting as your subcontractor, and the charges are taxable in full. You may issue a resale certificate in lieu of tax to the installer instead of paying tax to them directly.

Q: Can I avoid the tax by having a finance company pay the customer, who then pays the installer?
A: No. The letter states this type of arrangement doesn't save the consumer or the firm any tax dollars — the contract amount and the amount received from the finance company remain the taxable basis, and the third-party installer still must collect tax or accept a resale certificate in lieu of tax.

Citations and references

No specific statutes or administrative rules were cited by name in this letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9511755L

Original ruling text

November 28, 1995

Dear *****:

Thank you for your letter of November 16, 1995, concerning the taxability of
third party installation charges for above ground swimming pools.

Charges for a third party installation of tangible personal property are not
taxable. Separately stated charges for parts or materials used in the
installation are taxable. For sales and use tax purposes, "installation" is to
place tangible personal property in position, without changing its form, where
it will reasonably accomplish the purpose for which it is utilized. If the
"installer" is assembling or erecting the units (connecting component parts
into a finished product), the installer is conducting the final stage in the
manufacturing process. All charges associated with the assembly or erection of
tangible personal property are taxable. Above ground swimming pools are no
doubt assembled on site. The assembly is taxable processing labor given that
the installer is not affixing the pool in a way that creates an improvement to
realty.

Your firm does not actually install the above ground pools. Sales brochures
state that installation charges are due to a third party installer. On
occasion, your firm has billed customers an "installed" price and has paid the
installer for the customer. Our audit office was correct in stating that these
charges are taxable in full. The installer is acting as a subcontractor to
your firm on these jobs. You could issue a resale certificate in lieu of tax
to the third party installer.

Your firm is proposing entering into "installed" above ground pool agreements,
obtaining the total contracted amount from the finance company, and cutting a
check payable to the customer. The customer will than pay the installation
company. The contract amount and the amount received from the finance company
is still the taxable basis for this transaction. Entering into this type of
agreement does not save the consumer or your firm any tax dollars as a third
party installer needs to collect tax or a resale certificate in lieu of tax
when assembling tangible personal property.

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

You may call me toll free at 1-800-531-5441, ext. 5-0613. The direct line is
512/475-0613. You may also write to Tax Policy Division, Comptroller of Public
Accounts.

Sincerely,

Kevin Koller
Tax Policy Division