Is labor to install, upgrade, repair, or maintain computer hardware taxable in Texas -- and where can a computer repair business point skeptical customers for proof?

Plain-English summary

A computer repair business asked the Comptroller for documentation confirming that warranty upgrades and computer repair labor/services are taxable, because many customers were disputing the charge and asking for proof.

The Comptroller's answer: when you upgrade a computer, you're remodeling tangible personal property, and this is taxable. Specifically:

• Rule 3.308(a)(3) (the computer-specific rule) makes sales tax due on labor or services rendered in installing or applying computer hardware.
• Rule 3.308(a)(4) makes sales tax due on labor or services rendered in remodeling, repairing, maintaining, or restoring computer hardware, pointing to the general Rule 3.292 (Repair, Remodeling, Maintenance, and Restoration of Tangible Personal Property).
• Rule 3.292(b) states plainly that anyone who repairs, restores, remodels, or maintains tangible personal property belonging to someone else is providing a taxable service.
• Rule 3.292(a) defines the key terms: "remodel" means modifying the style, shape, or form of someone else's property without causing loss of identity or a new/different operating manner; "repair" means mending or restoring to working order property that was broken, damaged, worn, defective, or malfunctioning.

The letter also points the business to the Texas Secretary of State's rules website, so it can show the actual rule text to skeptical customers.

What this means for you

Computer repair and IT service businesses

Labor and service charges for installing, applying, upgrading, remodeling, repairing, maintaining, or restoring computer hardware are taxable under Rule 3.308 (which cross-references the general Rule 3.292). If customers dispute the tax, you can point them to the specific rule citations and the Secretary of State's public rules website for verification.

Accountants and tax professionals

This letter is a useful, citation-dense reference for the computer hardware repair/service taxability chain: Rule 3.308(a)(3)-(4) for computer-specific labor, cross-referencing the general Rule 3.292 repair/remodel/maintain/restore framework and its defined terms.

Common questions

Q: Is labor to upgrade a computer taxable in Texas?
A: Yes, per this letter — upgrading is treated as remodeling tangible personal property, which is taxable under Rule 3.308(a)(3)-(4) and Rule 3.292.

Q: Is computer repair labor taxable?
A: Yes, per this letter, under the same rules.

Q: Where can a business or customer verify these rules directly?
A: Per this letter, at the Texas Secretary of State's Texas Administrative Code website (34 TAC Title 3).

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.308(a)(3)-(4) (Computers — Hardware, Software, Services and Sales)
• 34 Tex. Admin. Code Rule 3.292 (Repair, Remodeling, Maintenance, and Restoration of Tangible Personal Property)
• 34 Tex. Admin. Code Rule 3.292(a)(5)-(6) (definitions of "remodel" and "repair")
• 34 Tex. Admin. Code Rule 3.292(b) (repairing/restoring/remodeling/maintaining another's property is a taxable service)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9808710L

Original ruling text

August 6, 1998

Dear **:

This is in response to your request for information regarding the taxability of
warranty upgrades purchases or services/labor charged in computer repair. You
have had many customers who dispute paying the tax and ask you where they can
find proof that these purchases are taxable.

Response: When you are upgrading a computer, you are remodeling tangible
property. Subsection (a) of Rule 3.308. Computers - Hardware, Software,
Services and Sales, provides as follows:

(3) Sales tax is due on charges for labor or services rendered in installing or
applying computer hardware.

(4) Sales tax is due on charges for labor or services rendered in remodeling,
repairing, maintaining or restoring computer hardware. See Rule 3.292
concerning Repair, Remodeling, Maintenance and Restoration of Tangible Personal
Property.

Subsection (b) of Rule 3.292 - Repair, Remodeling, Maintenance, and Restoration
of Tangible Personal Property. provides that "Persons who repair, restore,
remodel, or maintain tangible personal property belonging to another are
providing taxable services."

Repair and remodeling are defined in subsection (a) of rule 3.292, as follows:

(5) Remodel - To modify the style, shape, or form of tangible personal property
belonging to another without causing a loss of its identity or without causing
the item to operate in a new or different manner.

(6) Repair - To mend or restore to working order or operating condition
tangible personal property that was broken, damaged, worn, defective, or
malfunctioning.

You may download or view copies of the rules cited above at the following
website:

http://www.sos.state.tx.us/tac/34/I/3/O/index.html

This opinion is based on the facts presented. Other facts though similar may
provide a different result. I hope this information answers your questions.
If you need additional information, please call me toll-free at 1-800-531-5441,
extension 3-4502. The direct line is 512/463-4502. You may also write to Tax
Policy Division, Comptroller of Public Accounts. You may also e-mail our tax
help section at:

Sincerely,

Gilbert Zamora
Tax Policy Division