./ . . 

THEATTORNEY GENERAL 

OFTEXA~ 

FVILL WILSON 

A-ORNEYGENERAX. 

September 2, 1959 

Honorable Robert S. Calvert 

Comptroller of Public Accounts 

State of Texas 

Austin, Texas 

Opinion No. W-696 

Re: Correct meaning of 

"self contained units" 

as used in excise tax 

imposed upon sales 

of air conditioners 

by Article 20.01, Section 1, Cha ter 20, 

H.B. 11, 7 2 C.S. 

56th Leg. 

Dear Mr. Calvert: 

We quote from your opinion request as follows: 

"House Bill No. 11, the tax bill of the 

3rd Special Session of the 56th Legislature, 

Chapter 20 in Sub-Sec. 1 of Article 20.01 defines air conditioners. We quote the def'inition: 

rl"'Air conditioner" shall mean any selfcontained unit, apparatus or device commonly 

known, sold and used as an air conditioner and 

shall include any instrument, apparatus, or 

mechanical contrivance designed, constructed, 

or assembled as part of any such self-contained 

unit, apparatus or device to cool or assist in 

the cooling of air in any manner. The term 'air 

conditioner" shell also include all sub-assemblies, 

devices or instruments commonly used in conjunction with any such other apparatus, device, subassembly or instrument, which when combined or 

connected as e functioning self-contained unit, 

apparatus or device will constitute an air conditioner. The term air conditioner, however, 

shall not Include a buzz fan or any other apperatus, device or system designed and used only to 

circulate or move air, except when the same is e 

functioning pert of a larger unit defined herein 

es en air conditioner.' 

"We are having some difficulty in finding the 

correct application or meaning of "self contained 

units." The tax levied on air conditioning units 
. . 

Honorable Robert S. Calvert, page 2 Opinion No. W-696 

is found in Article 20.01 of this act. 

"Is the tax levied by this Article limited 

to self contained units? If so, does the self 

contained units include duct work, cooling 

towers, thermostats, heat pumps and the like? 

"One dealer has set out a detailed list of 

units or combination of equipment that Is sold 

by his customers. It would be helpful If you 

would examine this attached list and answer my 

questions in llsht of the questions submitted by 

this tax payer. 

The common or ordinary meaning of the term "self-contained" is reflected by the following definition taken from 

Webster's new International Dictionare (2nd. Ed.): 

"Sufficient in itself........... 

Mach. Having all the essential working parts 

connected by a bedplate or framework, or contained in a case, etc., so that the rmztual reletions of the parts do not depend upon fastenings 

outside of the machine itself." 

"Self-contained", as applied to an air conditioning 

unit also has an established meaning in the air conditioning lndustry: 

"A Self-Contained Air-Conditioning or Cooling 

Unit is one in which e condensing unit is combined 

in the same cabinet with the other functional elements. Self-contained air-conditioning units are 

classified according to the method of rejecting condenser heat (water-cooled, air-cooled, and evaporetlvely cooled), method of introducing ventilation 

air (no ventilation, ventilation by drawing air from 

outdoors, ventilation by exhausting room air to the 

outdoors, or ventilation by a combination of the 

last two methods), and method of dis charging air 

to the room (free delivery or pressure type)." 

Heating Ventilating Air-conditioning Guide, 1959, 

Publish&d by America; Society of Heating end Air 

Conditioning Engineers, Ch. 16, pa 223. 

The federal government is apparently the only other 

taxing authority to levy an excise tax on self-contained air 

conditioning units. 26 U.S.C.A. Sec. 4111 (I.R.C. 1954) contains the following language: 
Honorable Robert 5. Calvert, Page 3 Opinion No. W-696 

I, 

. . . . . . . . . . . . . . . 

Items taxable at 10s: 

"Self-contained air-conditioni,ng units." 

No further definition or explanation is given in the 

federal statute, but the term "self-contained" has, through 

departmental construction, been given a definition substantially 

in accord with the trade meaning.1 

From the foregoing discussion, end in view of the canon 

of~~statutory construction embodied in Art. 10, Sec. 1, V.A.C.S., 

that "words connected with a particular trade. . . shall have 

the signific;tion attached to them by excerts in such art or 

trade. . . it appears that the term 

meaning that 1s clear and unambiguous. 

self-contained" has a 

. 

It is clear that the term "air conditioner" Is modified by the term "self-8ontained " in the definition set forth in 

Art. 20.01 of H.B. 11. It follows that the air conditioners 

1'The type of self-contained air-conditioning unit subject to 

tax under Code Sec. 4111 includes a unit, whether a factory 

made encased assembly or one sold for assembly upon installation, primarily designed for free delivery of air and for installation in a window or in front of a window or other openlng which (1) contains means for moving outside air through 

its condenser, (2) includes means for cooling, dehumidifying, 

and circulating the air of a room; and (3) has a total motor 

horsepower of less than 1 horsepower for motor-driven compressor types, or, in the case of absorption types, a total cooling capacity of less than 10,000 b.t.u.'s per hour at standard American Society of Refrigerating Engineers test conditions as set forth in ASRE Circular No. 16, dated June, 1940. 

The horsepower rating assigned or designated by a manufacturer 

of a particular motor compressor or conditioning unit is conclusive. (Rev. Rul. 54-462, 1954-2 CB 410, as clarified by 

Rev. Rul. 57-459, I.R.B. 1957-42, 68 superseding S.T. 934, 

1948-z m 180) .I’ The horsepower test in the foregoing definitbnwas ruled invalid as being an excession of the administrative power of the Revenue Department. Cory Corp. v. Sauber, 

59-l U.S.T.C.; Federal Excise Tax Reports Sec. 15,242, CCH; 

--F 2d---. It can be seen that with the elimination of the 

horsepower requirements, the construction is in substantial 

accord with the trade definitions. A recent revision of the 

quoted ruling by the Revenue Department, the citation of which 

is at present unavailable, relates the construction and the 

trade meaning even more closely. 

2 It is significant to note that in the three sentence definition, the term self-contained appears no less than 3 times. 
Honorable Robert S. Calvert, page 4 Opinion No. W-696 

taxable under Art. 20.01 are limited to "self-contained units", 

es that term is defined above. To elucidate, all air conditioners in which all instruments and/or equipment necessary to 

the ordinary air conditioning function (i.e. the cooling of 

air) are combined on one bedplate or assembly, or In one encasement, are taxable. Also, all instruments, devices, essemblies, or equipment sold or designed for use in a self-contained 

air conditioner are taxable under the Act. (To hold otherwise 

would open the door to fraud end evasion of the tax). Size or 

horsepower of the unit 1.s not important, nor is the manner in 

which it cools the air.3 

The term "air conditioner" does not include duct 

work, which serves only to deliver the cooled air. Separate 

thermostats are not included, but thermostats attached to and 

a part of a self-contained unit should be considered a part of 

the unit for the purpose of,taxation. From the technical data 

studied in connection with this opinion, it appears that cooling towers serve only to eliminate waste of water used in the 

air conditioning process, and are not "self-contained" within 

the unit; under this state of facts, such towers are not taxable. (It should be noted that the foregoing equipment, though 

located separately, will not keep a unit from being self-contained). 

Rather than to discuss each instrument or device individually, we are returning the list forwarded to us, with an 

indication of the items considered taxable under the principles 

advanced above. 

An additional query has been propounded concerning 

whether the "prime contractor" or "sub-contractor" is required 

to account to the,State for taxes on air conditioners installed 

in new buildings pursuant to construction contracts. The Act 

contemplates that the tax shall be paid by the "user' and collected and accounted for by the %etailer.' 

"Retailer" is defined as follows: 

II 

. . . . . . 

"(c) 'Retailer' shall mean and include every 

person in this State who manufactures, produces, or 

in any other manner acquires or possesses any of the 

items taxable under this Chapter for the purpose of 

31t should be noted that the air conditioner must cool the air 

es opposed to merely moving or circulating the air. 
. . 

Honorable Robert S. Calvert, page 5~ Opinion No. b!‘t?-696 

making a resale, distribution, or use of the same 

In this State to the user; and it shall also include every person in this State who ships, transports or Imports into this State any Item taxable 

under this Chapter and makes the first distribution of, use by, or sale to the user of same in 

this State." 

"User" is defined as follows: 

II . . . . . 

"(P) 'User' shall mean and include every person who purchases, uses or acquires in any other 

manner any item taxable under this Chapter for his 

own use in Texas and who does not purchase or acquire 

same for the purpose of resale." 

"Use" Is defined as follows: 

"(n) 'Use' shall mean the keeping or retention 

in this State of any Item taxable under this Chapter 

by the user, or the exercise of any right or power 

over any such item incident to the ownership thereof. 

The term 'use' shall not include the storing, keepint3, or retention of items taxable under this Chapter 

In any place of business where such items are sold, 

or offered for sale, or demonstrated for sale Ian the 

regular course of business conducted at such places, 

nor shall the said term include items taxable under 

this Chapter which are crated and stored in Texas 

for sale and delivery outside the State of Texas." 

As between the prlme and the sub-contractor, the subcontractor Is the "retailer". Upon installation in the building, the air-conditioner loses its identity as such. The prime 

contractor exercises all incidents of ownership over the house, 

ad, consequently, the air conditioner. The prime contractor 

does not store, keep or retain the conditioner in any place of 

business where such items are sold, offered for sale, or 

demonstrated in the regular course cf business. Therefore, 

having made the 'use" contemplated by paragraph (n) above, the 

prime contractor Is a "user" as defined in paragraph (p). 

It is immaterial that the building Is subsequently sold.' In 

making such a sale, the prime contractor is not deallng.wlth 

the air conditioner separately within the contemplation of Art. 

20.01 of H.B. 11. Therefore, you are advised that the subcontractor makes the "retail sale" to the prime contractor, 

who has the duty of paying the tax; in turn the sub-contractor 

must collect and account for the tax to the State. 
. . 

Honorable Robert S. Calvert, page 6 Opinion No. W-696 

SUMMARY 

The air conditioners taxed under the 

definition contained in Art. 20.01 of H.B. 11, 

3rd C.S. 56th Leg. are limited to "self-contained" units, and include all devices, instruments, assemblies or sub-assemblies which comprise, or which are sold or designed to be used 

in such a unit. 

In cases of building construction contracts, the prime contractor Is liable for the 

tax, and the sub-contractor has the duty of 

collecting the tax and accounting to the State. 

Yours very truly, 

WILL WILSON 

Attorney General of Texas 

By s/Jack N. Price 

Jack N. Price 

Assistant 

JNP:cm:wc 

APPROVED: 

OPINION COMMITTEE: 

Geo. P. Blackburn, Chairman 

J.C. Davis 

James R. Irion 

Marvin R. Thomas, Jr. 

REVIEWED FOR THE ATTORNEY GENERAL 

By: W. V. Geppert