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THEATTORNEY GENERAL OFTEXA~

FVILL WILSON A-ORNEYGENERAX. September 2, 1959 Honorable Robert S. Calvert Comptroller of PublicAccounts State of Texas Austin, Texas OpinionNo. W-696
Re: Correctmeaning of "selfcontainedunits" as used in excise tax imposedupon sales of air conditioners by Article 20.01, Section 1, Cha ter 20, H.B. 11, 72 C.S. 56th Leg. Dear Mr. Calvert:

We quote from your opinion request as follows:
"HouseBill 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 selfcontainedunit, apparatus or device commonly known, sold and used as an air conditioner and shall include any instrument,apparatus, or mechanical contrivancedesigned, 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-containedunit, 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 ormove air, exceptwhen the same is e functioningpert of a largerunit defined herein es en air conditioner.'
"Weare having some difficulty in finding the correct application or meaning of "selfcontained units." The tax levied on air conditioningunits..

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

is found in Article 20.01 of this act.
"Is the tax leviedby this Article limited to self containedunits? If so,does the self containedunits includeduct work, cooling towers, thermostats,heat pumps and the like?
"Onedealer 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 submittedby this tax payer. The common or ordinarymeaning of the term "self-contained" is reflectedby the followingdefinition taken from Webster's new InternationalDictionare (2nd.Ed.):

"Sufficient in itself........... Mach. Having all the essentialworking parts connectedby a bedplate or framework, or contained in a case, etc., so that the rmztualreletions 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 establishedmeaning in the air conditioning lndustry:
"A Self-ContainedAir-Conditioning or Cooling Unit is one in which e condensingunit is combined in the same cabinetwith the other functional elements. Self-contained air-conditioningunits are classified according to the method of rejecting condenser heat (water-cooled,air-cooled,and evaporetlvely cooled),method of introducingventilation air (noventilation,ventilationby drawing air from outdoors,ventilationby exhaustingroom air to the outdoors, or ventilationby a combination of the last two methods), and method of dis charging air to the room (freedelivery or pressure type)." Heating Ventilating Air-conditioningGuide, 1959, Publish&dby America; Society of Heating end Air ConditioningEngineers, Ch. 16, pa 223. The federal government is apparently the only other taxing authority to levy an excise tax on self-containedair conditioningunits. 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-containedair-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 trademeaning.1

From the foregoingdiscussion, end in view of the canon of~~statutory

construction embodied in Art. 10, Sec. 1,V.A.C.S., that "words connectedwith a particular trade.

. . shall have the signific;tionattached 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 "airconditioner" Ismodified 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-containedair-conditioningunit subject to tax under Code Sec. 4111 includes a unit, whether a factory made encased assembly or one sold for assemblyupon installation, primarilydesigned for free delivery of air and for installation in a window or in front of a window or other openlngwhich (1) containsmeans for moving outside air through its condenser, (2) includesmeans 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 inASRE CircularNo. 16, dated June, 1940. The horsepowerrating assigned or designated by a manufacturer of a particularmotor compressor or conditioningunit is conclusive. (Rev.Rul. 54-462, 1954-2 CB 410, as clarifiedby Rev. Rul. 57-459, I.R.B. 1957-42, 68 supersedingS.T. 934, 1948-z m 180) .I’ The horsepower test in the foregoingdefinitbnwas ruled invalid as being an excession of the administrative power of the RevenueDepartment. 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 accordwith the trade definitions. A recent revision of the quoted rulingby the Revenue Department, the citation of which is at present unavailable, relates the constructionand the trade meaning even more closely. 2 It is significantto note that in the three sentencedefinition, the term self-containedappears no less than 3 times.Honorable Robert S. Calvert, page 4 OpinionNo. W-696

taxableunder Art. 20.01 are limited to "self-containedunits", es that term is defined above. To elucidate,all air conditioners inwhich all instrumentsand/or equipmentnecessary 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 foruse in a self-contained air conditionerare taxableunder 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 includeduct work, which serves only to deliver the cooled air. Separate thermostats are not included,but thermostatsattached to and a part of a self-containedunit shouldbe considereda part of the unit for the purpose of,taxation. From the technicaldata studied in connectionwith this opinion, it appears that cooling towers serve only to eliminatewaste of water used in the air conditioningprocess, and are not "self-contained"within the unit; under this state of facts, such towers are not taxable. (It shouldbe 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 taxableunder the principles advanced above.

An additional query has been propounded concerning whether the "primecontractor" or "sub-contractor"is required to account to the,State for taxes on air conditioners installed in new buildingspursuant to construction contracts. The Act contemplates that the tax shallbe paid by the "user'and collected and accounted for by the %etailer.'

"Retailer"is defined as follows: II

. . . . . . "(c) 'Retailer'shallmean and include every person in this State who manufactures,produces, or in any othermanner acquires or possesses any of the items taxableunder this Chapter for the purpose of
31t shouldbe noted that the air conditionermust cool the air es opposed to merely moving or circulating the air.. .

Honorable Robert S. Calvert,page 5~ OpinionNo. 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'shallmean and include every person who purchases,uses or acquires in any other manner any item taxableunder 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'shallmean the keeping or retention in this State of any Item taxableunder 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 taxableunder this Chapter In any place of business where such items are sold, or offered for sale, or demonstrated for sale Ianthe regular course of business conducted at such places, nor shall the said term include items taxable under this Chapterwhich 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"contemplatedby 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 separatelywithin the contemplation of Art. 20.01 of H.B. 11. Therefore, you are advised that the subcontractormakes the "retailsale" 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 OpinionNo. W-696

SUMMARY The air conditioners taxedunder the definition contained inArt. 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-assemblieswhich 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-contractorhas 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