Sales Tax Articles
Sales Tax State Activity Update - May 2006
Texas Reviews Remodeling and Modifications Taxability
Background
The Petitioner in February 1991, entered into a contract with a customer for the installation of an upgraded rotor in a turbine and performance of miscellaneous valve work. The contract provided that the work would commence and be completed during two scheduled, periodic outages.
Upon audit, tax was assessed on the amount allocated to the cost of the installation of the upgraded rotor as taxable maintenance to real property. The turbine in which the upgraded rotor was placed was functioning at the time of the outages.
Decision
The Administrative Law Judge ruled the installation charges were exempt from tax. The rational for the ruling is a 1992 amendment to the definition of "remodeling or modification" in Rule 3.357(a) (7) (now subsection 11) that adds the sentence "However, the replacement of an item within an operating and functioning unit in accordance with subsection (a)(3) of this rule is not taxable remodeling or modification." The definition of "maintenance" in Rule 3.357(a) is likewise amended as follows:
- (4) Maintenance on real property. For operational and functioning improvements to realty, maintenance means scheduled, periodic work necessary to sustain or support safe, efficient, continuous operations, or to prevent decline, failure, lapse, or deterioration of the improvement. Taxable real property services covered by Rule 3.356 concerning Real Property Service do not qualify as maintenance. (Now subsection 7)
(A) As it relates to maintenance, the term "scheduled" means anticipated and designated to occur within a given time period or production level.
(B) As it relates to maintenance, the term "periodic" means ongoing or continual or at least occurring at intervals of time or production which are generally predictable.
View the full text on the Texas State Tax Automated Research system.
(Texas Comptroller's Decision 40,607, 02/23/2006)
Subscribe to CyberTax News and receive the latest indirect tax news, including rate changes, rule updates, compliance issues, and more, delivered directly to your email.
Call 800.355.3500 to Speak to a Sales Representative.
