Is installing a permanent, built-into-the-eaves insecticide spray system in a home a taxable real property service, and is the concentrate insecticide refill taxable too?

Plain-English summary

A distributor sells a built-in insecticide spray system: nozzles permanently attached to a home's eaves, connected by nylon tubing run inside the eave structure, fed by a pump-and-motor unit mounted on a drum in the garage. Removing the system would cause extensive damage requiring repair, so when the home is later resold, the system stays with it as a permanent feature. The distributor works with home builders, landscapers, and pool builders who refer leads for installation, then personally installs the equipment on-site. The distributor asked whether installing this permanent system is taxable, and separately, whether selling refill concentrate insecticide (which the customer pours into the tank and mixes with water once the original tank runs empty) is taxable.

The Comptroller's answer branches on a threshold classification question: if installation of the system is a structural pest control service covered by Section 2 of the Texas Structural Pest Control Act, the ENTIRE installation charge is taxable as a real property service under Rule 3.356(a)(8)(A)-(C). If it is NOT covered by that Act, ordinary residential remodeling contractor rules apply instead: under a lump-sum contract, no tax is collected from the customer on the lump-sum price, but the contractor pays tax on all incorporated materials, equipment, and supplies used; under a separated contract, tax is collected on the agreed price for incorporated materials only (not labor), the contractor may buy those materials tax-free with a resale certificate, but must still pay tax on equipment and supplies used in the job. Either way, sales of the replacement concentrate insecticide are taxable.

What this means for you

Distributors and installers of built-in pest control / insecticide systems

Determine first whether your installation work is regulated as structural pest control under the Texas Structural Pest Control Act -- that classification decides whether your ENTIRE installation charge is taxable (pest control classification) or whether ordinary lump-sum/separated contractor rules apply instead (non-pest-control classification), which can shift some of the tax burden to materials only.

Home builders, landscapers, and pool builders referring installation work

The installer's tax treatment depends on regulatory classification and contract structure -- confirm with your installer/subcontractor how they've classified the work before assuming a particular tax outcome flows through to your own customer pricing.

Homeowners maintaining a built-in system

Expect the replacement concentrate insecticide you buy to refill the tank to be taxable regardless of how the original installation was classified.

Common questions

Q: Is installing a permanent, built-in insecticide spray system in a home always taxed the same way?
A: No, per this letter -- it depends on whether the work is covered by the Texas Structural Pest Control Act (entire charge taxable as a real property service) or not (ordinary lump-sum/separated contractor rules apply instead).

Q: Is the concentrate insecticide refill taxable?
A: Yes, per this letter -- sales of the concentrate insecticide are taxable regardless of how the installation itself is classified.

Q: Under a separated contract (non-pest-control classification), is installation labor taxed?
A: No, per this letter -- tax is collected only on the incorporated materials' price, not the labor, though the contractor still pays tax on equipment/supplies used.

Citations and references

Rules:

• 34 Tex. Admin. Code Rule 3.356(a)(8)(A)-(C) (structural pest control services under the Texas Structural Pest Control Act)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9707567L

Original ruling text

July 16, 1997

Dear ***:

Thank you for your letter dated July 9, 1997, concerning the taxability of an
insecticide spray unit installed in homes.

Facts: You are a distributor of a spray unit that emits an insecticide through
spray nozzles that are interconnected with nylon tubing. These nozzles are
permanently attached to the eaves of a home, and the tubing is run inside of
the eave structure. The unit consists of a pump and motor that sits on top of
a drum and is mounted in the garage. If the unit was to be removed from the
home it would cause extensive damage, that would need to be repaired.
Therefore, when the home is resold, the system is sold along with it as an
added feature. You work with home builders, landscapers, and pool builders who
turn leads over to me for installation of these systems. You then go to the
job site and completely install the equipment.

If the system is permanent and being resold with the home, is sales tax due?
What part of the charge, if any, is taxable?

In addition, when the tank runs empty, the customer calls you to send him a
concentrate insecticide which he pours into the tank, and then adds water. In
this situation, sales tax due?

Response: If installation of the insecticide spray unit is a structural pest
control service covered by Section 2 of the Texas Structural Pest Control Act,
the entire charge will be taxable as a real property service. See enclosed
Rule 3.356(a)(8)(A)(B)(C).

If the work is not covered by the Texas Structural Pest Control Act, the
following will apply:

When a residential remodeling contract is a lump-sum contract, no tax is
collected from the customer on the lump-sum price. The lump-sum contractor is
responsible for paying tax on all incorporated materials, equipment and
supplies used in performance of the contract.

If the residential remodeling contract is a separated contract, tax is
collected on the agreed contract price for incorporated materials, but not the
labor. A separated contractor may purchase the incorporated materials tax free
by giving a resale certificate. The contractor must pay tax on equipment and
supplies used in performance of the contract.

Sales of the concentrate insecticide are taxable.

Sales tax rules are available on the Internet
.

This opinion is based on the facts you submitted and current law. Other facts
though similar, may result in different answers.

If you have any questions or need more information, you may call me toll free
at 1-800-531-5441, ext. 50330. The direct line is 512/475-0330. You may also
write to Tax Policy Division, Comptroller of Public Accounts.

Sincerely,

Bettie Peterson
Tax Policy Division