Does a Texas mobile home dealer owe sales tax on the tools, equipment, and materials it uses to repair or refurbish manufactured homes held for resale?

Subject

Mobile Home — Repairs And Remodeling (Installing Doors, Windows, Skirting) To Real Property

Plain-English summary

A Texas-licensed mobile home/manufactured housing dealer wrote in asking about sales tax on the tools, equipment, and materials it uses in its business. The dealer both refurbishes and resells used manufactured homes, and also does final completion and repairs (for transit or weather damage) on new homes it holds for sale. All the homes involved are owned by the dealer, and the answers apply only to manufactured homes/mobile homes carrying a HUD sticker (not to mobile homes classified as motor vehicles).

The Comptroller's core reasoning: repairing or refurbishing a manufactured home held for resale doesn't meet the definition of a "manufacturer" under Rule 3.300. Instead, the dealer is treated like a contractor improving real property -- the same way a contractor who repairs or remodels a site-built house is treated. A contractor building or repairing a site-built home owes sales tax on the supplies, materials, and equipment used, including materials incorporated into the real property. The Comptroller applied that same framework to mobile home repair/refurbishing, citing Rule 3.291 (contractors).

Going through the dealer's list of equipment and supplies:

• Taxable: delivery vehicles; hydraulic jacks (leveling, mating sections, blocking); compressed-air nail and staple guns; compressed-air jacks and lifting/air-bag components; blocking material required by the manufacturer or the Texas Department of Housing and Community Affairs (TDHCA); bench saws, drill presses, and similar shop equipment; electric drills, saws, sanders, carpet seamers, and similar tools; and fire extinguishers/refills.
• Plumbing fittings and skirting material ("necessary and essential" per the manufacturer, TDHCA, or the financing source): if billed separately and itemized to the homeowner, the dealer can issue a resale certificate instead of paying tax at purchase; if billed as part of a lump-sum "installation" charge, the dealer owes tax on its own cost when it buys the fittings/skirting. Texas Tax Code 158.154 is cited for the plumbing fittings answer.
• Plastic sheeting used to cover open sections of multi-section homes in transit: exempt only if purchased by the home's manufacturer; taxable if purchased by the dealer or by a transport company hired to move the home.

The letter explains the manufactured housing tax was designed to tax manufactured homes similarly to how site-built homes are taxed (based on the average percentage of building materials in a comparable site-built house), with materials incorporated into the home taxable and labor not taxable. As with other STAR letters, the Comptroller notes the answer is based on the facts presented and could differ under different facts.

What this means for you

Mobile home and manufactured housing dealers

If you refurbish or repair homes you hold for resale, expect to pay sales tax on essentially all your tools and equipment -- vehicles, jacks, nail/staple guns, air-powered lifting equipment, shop tools, hand tools, and fire extinguishers are all called out as taxable in this letter. You're treated as a contractor working on real property, not as a manufacturer, so the manufacturer's exemptions in Rule 3.300 don't apply to your refurbishing/repair activity.

Businesses buying plumbing fittings or skirting for resale

If plumbing fittings or skirting material are "necessary and essential" per the manufacturer, TDHCA, or the financing source, how you bill the customer matters: itemize them separately on the invoice and you can buy them tax-free with a resale certificate; bundle them into a lump-sum installation price and you owe tax on your own purchase cost instead.

Accountants and tax professionals

Note the narrow exemption for plastic sheeting used to cover open portions of multi-section homes in transit -- it's exempt only when purchased by the home's manufacturer, not when purchased by the dealer or by a hired transport company. Also note the letter frames the entire analysis around Rule 3.291 (contractors) and Rule 3.300 (manufactured housing), since the repairing/refurbishing dealer here doesn't qualify as a "manufacturer."

Common questions

Q: Does a mobile home dealer owe tax on the tools and equipment used to refurbish homes for resale?
A: Yes. According to this letter, delivery vehicles, hydraulic jacks, compressed-air nail/staple guns, compressed-air lifting equipment, shop equipment like bench saws and drill presses, hand tools like electric drills and sanders, and fire extinguishers are all taxable.

Q: Can the dealer buy plumbing fittings or skirting material tax-free?
A: Only if those items are "necessary and essential" per the manufacturer, TDHCA, or the financing source, and are itemized separately on the invoice to the homeowner -- in that case the dealer may issue a resale certificate. If the dealer instead bills a lump sum for delivery and "installation," the dealer owes tax on its own cost of the fittings/skirting.

Q: Is plastic sheeting used to cover multi-section homes during transport taxable?
A: It depends who buys it. It's exempt if purchased by the home's manufacturer, but taxable if purchased by the dealer reselling the home or by a transport company hired to move it.

Q: Why isn't the dealer treated as a "manufacturer" under Rule 3.300?
A: Because repairing or refurbishing a damaged manufactured home or mobile home (with a HUD sticker) that's held for resale doesn't meet Rule 3.300's definition of a manufacturer. The letter notes the Department of Labor and Standards instead registers and bonds the person restoring a home that has sustained sufficient damage to be declared salvage, as a retailer.

Q: Could this answer change under different facts?
A: Yes. The letter states the opinion is based on the facts presented, and different facts, even if similar, may result in different answers.

Citations and references

Statutes and rules:

• Texas Tax Code 158.154 (plumbing fittings billed separately vs. lump-sum installation)
• 34 Tex. Admin. Code Rule 3.291 (Contractors)
• 34 Tex. Admin. Code Rule 3.300 (Manufactured Housing)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9607L1421G11

Original ruling text

July 23, 1996

Dear ***:

Thank you for your letter dated July 22, 1996, concerning sales tax.

Facts: Your company is a Texas licensed mobile home/manufactured housing
dealer. As such, you are licensed to refurbish and retail used manufactured
housing for sale to the general public. In addition, you retail and perform
final completion and repairs to new homes you hold for sale to the general
public. Repairs are when homes are damaged in transit or by inclement weather.
In both cases, the homes are owned by your company.

Please note: the answers below pertain only to manufactured houses and mobile
homes that have the HUD sticker. The answers do not apply to mobile homes that
are classified as motor vehicles.

The equipment and/or supplies your company uses to repair or refurbish the
homes that you want us to address are listed below followed by our response.

1. Vehicles used to deliver homes to homesite. Response: Taxable.

2. Hydraulic jacks used for leveling, used in mating sections of multi-section
   homes, and in blocking homes for "rebuilding" (12 to 20 ton capacity).
   Response: Taxable.

3. Compressed air-powered nail guns and staple guns (attached to a source of
   compressed air such as a diesel truck, a compressor, or canned air). These
   guns "fire" a nail from a linked nail belt. Response: Taxable.

4. Compressed air-powered jacks and lifting system (air bag) components.
   Response: Taxable.

5. Blocking material purchased for the specific purpose of meeting safe
   installation standards, incident to a retail sale of a home, when required by
   the manufacturer of the home or the Texas Department of Housing and Community
   Affairs. Response: Taxable.

6. Plumbing fittings for connecting water and sewer installed incident to a
   retail sale of a home when described by the manufacturer of the home , Texas
   Department of Housing and Community Affairs, or the financing source as
   "necessary and essential." Response: If the plumbing fittings are identified
   and invoiced separately to the homeowner, your company may issue a resale
   certificate in lieu of paying tax on the plumbing fittings at the time of
   purchase. You would owe tax to the vendor on your cost of the plumbing
   fittings if you bill a lump-sum amount for delivery and "installation" of the
   home. Texas Tax Code 158.154.

7. Skirting material purchased for the specific purpose of installing a "skirt"
   from the lower edge of the home to the ground incident to a retail sale of a
   home described by the manufacturer of the home , Texas Department of Housing
   and Community Affairs, or the financing source as "necessary and essential."
   Response: Same response as given to question #6 above.

8. Plastic sheeting used to cover open portions of multi-section homes during
   transportation to the home site incident to sale or movement to a processing or
   retail sales site. Response: The plastic sheeting would be exempt if purchased
   for use by the manufacturer of the home. The plastic sheeting would be taxable
   if purchased for use by the dealer who sells the home, or to a transport
   company hired to move the home (only the manufacturer of the home may purchase
   the plastic sheeting exempt).

9. Bench saws, drill presses and similar equipment located in the refurb shop
   or processing exclusively. Response: Taxable.

10. Electric drills, saws, sanders, carpet seamers, and similar tools.
    Response: Taxable.

11. Fire extinguishers, and refill of fire extinguishers (gases). Response:
    Taxable.

The purpose of the manufactured housing tax was to tax manufactured houses
similar to the way site built houses are taxed. The manufactured housing tax
was based on the average percent of building materials incorporated into the
house being manufactured. The percentage used is the same average percentage
of building materials used to build a site built house. The materials
incorporated into the home being repaired/refurbished are subject to sales tax
and the labor is not taxable.

A contractor building a site built home owes tax on all his supplies,
materials, and equipment used to build the home. The contractor also must pay
sales tax on all materials that are incorporated into the realty. This also
applies to the repair or remodeling of a residential structure.

The applicability of sales tax is the same for the repair/refurbishing of a
manufactured home as it is for a site built home. This is covered under
Comptroller Rule 3.291 on contractors.

Repairing or refurbishing damaged manufactured homes or mobile homes (with a
HUD sticker) that are held for resale does not meet the definition of a
manufacturer as defined in Rule 3.300. It is our understanding that the
Department of Labor and Standards registers and bonds the person restoring a
manufactured home (that has sustained sufficient damage to be declared salvage)
as a retailer.

This opinion is based on the facts you presented and current law. Different
facts although similar, may result in different answers.

Please call me if you have further questions or need additional information.
Our toll free number is 1-800-531-5441, and my extension is 5-0330. You may
also write to Tax Policy Division, Comptroller of Public Accounts.

Sincerely,

Bettie Peterson
Tax Policy Division