Is demolition debris removal a nontaxable industrial-solid-waste service, and can a demolition company buy third-party debris hauling tax-free for resale?

Plain-English summary

A demolition contractor tears down (partially or completely) real property improvements and hauls away the resulting debris — bricks, mortar, rocks, and other building materials — usually by subcontracting third-party haulers. It doesn't separately bill for demolition versus debris removal. The company asked two things: is the debris removal exempt as "industrial solid waste" removal, and if not, can it at least buy the hauling service tax-free for resale?

The Comptroller answered both, with a two-part split:

1. Is demolition debris "industrial solid waste"? No. Texas law exempts the removal of industrial solid waste (waste from industry, manufacturing, mining, or agriculture) but taxes the removal of ordinary "municipal solid waste." Demolition debris from tearing down a building is municipal solid waste, not industrial — a position the Comptroller has held consistently across four prior decisions. So debris removal is a taxable real property service.
2. How the tax applies depends on demolition type. Partial demolition counts as taxable nonresidential remodeling, so a lump-sum charge covering both partial demolition and debris removal is fully taxable — the company must collect tax on the whole charge and can buy the hauling tax-free for resale. Complete demolition, by contrast, is not itself taxable (it's neither remodeling nor a modification), but debris removal still is — and because the two services are "unrelated" (a customer could get one without the other), Rule 3.356(i)'s 5% bundling rule applies: if the debris-removal portion of a lump sum exceeds 5% of the total, the entire charge is presumed taxable (rebuttable with supporting records); if it's 5% or less, the whole charge stays nontaxable, and the contractor cannot buy the hauling tax-free for resale (there's nothing being resold as a taxable item). Either way — separately billed or presumed-taxable-bundled — whenever debris removal ends up taxable, the contractor may issue a resale certificate to its third-party haulers.

What this means for you

Demolition contractors and debris haulers

Don't assume construction/demolition debris qualifies as exempt "industrial solid waste" — Texas has consistently treated it as taxable municipal solid waste removal since at least 1998. Your actual tax exposure depends on whether you're doing partial demolition (always fully taxable, bundled or not) or complete demolition (taxable only via the debris-removal component, subject to the 5% bundling threshold).

Contractors bundling multiple real-property services into one price

The "5% rule" here is the same bundling mechanism seen in other bundled-charge rulings: cross 5% taxable content in a lump sum of otherwise-unrelated services, and the whole charge is presumed taxable unless you keep records proving a smaller split. Keeping demolition and debris-removal charges separately stated on invoices is the cleanest way to control which portion gets taxed.

Accountants and tax professionals

The ruling distinguishes "unrelated" services (readily separable, each independently obtainable — debris removal and complete demolition here) from services that are integral to one another, which matters for whether Rule 3.356(i)'s bundling presumption even applies. It also confirms the resale-certificate mechanics work the same regardless of which path makes the charge taxable — separately stated, presumption-triggered, or otherwise.

Common questions

Q: Is construction/demolition debris ever treated as exempt industrial solid waste?
A: Not under this ruling — the Comptroller has consistently classified it as taxable municipal solid waste, distinct from waste generated by industrial, manufacturing, mining, or agricultural processes.

Q: If my demolition company doesn't separately bill for debris removal, is the whole charge automatically taxable?
A: For partial demolition, yes, always. For complete demolition, only if the debris-removal portion is more than 5% of the lump sum (and even then, you can potentially rebut the presumption with cost records).

Q: Can I buy debris-hauling services tax-free from a subcontractor?
A: Yes, whenever your own charge for that debris removal is itself taxable (separately stated, or bundled and taxable/presumed-taxable) — you're reselling the hauling service to your customer and can issue a resale certificate.

Q: Can another demolition contractor rely on this ruling?
A: No. It's a private letter ruling binding on the Comptroller only for the taxpayer and facts submitted, and it cannot be relied on by any other taxpayer.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.0048(a)(3), (b-1) (Real Property Service — garbage/solid waste removal)
• Tex. Health & Safety Code § 361.003(16), (20) (industrial vs. municipal solid waste definitions)
• 34 Tex. Admin. Code Rule 3.356(a)(3)(E), (a)(11), (i) (Real Property Service — 5% bundling rule)
• 34 Tex. Admin. Code Rule 3.357(a)(11) (Nonresidential Real Property Repair, Remodeling, and Restoration — partial vs. complete demolition)
• Tex. Tax Code § 151.006(a)(1) ("Sale for Resale"); § 151.302(a) (Sales for Resale)
• Comptroller's Decision Nos. 44,501 (2005); 38,774 (2003); 36,504 (1998); 36,670 (1998) (construction debris = taxable municipal solid waste)
• Comptroller's Decision Nos. 109,193 (2015); 40,749 (2002); 34,706 (1997) (complete demolition not taxable remodeling)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/201807008L

Original ruling text

July 11, 2018

Re: Private Letter Ruling No. 2017010161

* Taxpayer No. *

Dear ***:

We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters.[ENDNOTE: 1] We are responding to your request dated May 26, 2017. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

You requested guidance regarding the taxability of demolition and associated debris removal services. Specifically, you ask whether the removal of the debris is considered nontaxable as the removal of industrial solid waste, and, if not, whether the debris removal services may be purchased tax-free for resale from third-party haulers.

Facts Presented

*** (Taxpayer) provides both partial and complete real property demolition and associated debris removal services. Taxpayer usually subcontracts with third-party haulers to perform the debris removal services. The demolition debris comprises bricks, mortar, rocks, and other miscellaneous building materials. Taxpayer does not separately state charges for the demolition and debris removal services in its contracts or invoices.

Questions, Rulings, and Analysis

Our restatement of your questions is shown below, followed by our responses and analysis.

Question One: Is a service to remove debris stemming from demolition a taxable real property service or a nontaxable service to remove industrial solid waste?

Ruling One: A service provided to remove demolition debris is a taxable real property service. For sales tax purposes, debris associated with the demolition of a real property improvement is not industrial solid waste.

Analysis:

Section 151.051(a) (Sales Tax Imposed) imposes a tax on the sale of taxable items in Texas. Section 151.010 (Taxable Item) defines a taxable item as tangible personal property and taxable services. Section 151.0101(a)(11) (“Taxable Services”) specifically includes real property services as a taxable service.

Section 151.0048(a)(3) (Real Property Service), in part, defines real property services to include the removal or collection of garbage, rubbish, or other solid waste. Garbage or other solid waste does not include industrial solid waste, as defined in Health and Safety Code, Chapter 361 (Solid Waste Disposal Act), with the exception of industrial solid waste which meets the definition of garbage or municipal solid waste. Section 151.0048(a)(3)(B); Rule 3.356(a)(3)(E) (Real Property Service).

Industrial solid waste is solid waste resulting from or incidental to a process of industry or manufacturing, or mining or agricultural operations. Health and Safety Code, Section 361.003(16) (Definitions). Municipal solid waste is solid waste resulting from, or incidental to, municipal, community, commercial, institutional, or recreational activities, and includes garbage, rubbish, ashes, street cleanings, dead animals, abandoned automobiles, and other solid waste other than industrial solid waste. Health and Safety Code, Section 361.003(20).

Taxpayer’s demolition debris service is a taxable service to remove or collect municipal solid waste. The Comptroller has consistently held that the removal of construction debris is taxable because the debris is properly classified as municipal solid waste and is not excluded as industrial solid waste. See Comptroller’s Decision Nos. 44,501 (2005); 38,774 (2003); 36,504 (1998); and 36,670 (1998).

Question Two: May Taxpayer purchase the debris removal services tax-free for resale from third-party haulers?

Ruling Two: When Taxpayer charges a lump-sum price for nontaxable complete demolition services and taxable debris removal services, and the portion of the charge attributed to the taxable services is more than 5.0% of the total charge, the entire charge is presumed to be taxable. Taxpayer may overcome this presumption by submitting documentary evidence that establishes the portion of the total charge attributable to taxable and nontaxable services. Whether Taxpayer overcomes the presumption or not, however, Taxpayer may purchase the debris removal services tax-free for resale.

If the charge attributed to the debris removal is 5.0% or less, Taxpayer is providing nontaxable complete demolition services. Taxpayer may not issue a resale certificate for the debris removal services.

Partial demolition services are taxable as nonresidential remodeling. When Taxpayer charges a lump-sum price for taxable partial demolition services and debris removal services, Taxpayer may purchase the debris removal services for resale.

Analysis:

Partial Demolition

Partial demolition constitutes a real property repair and remodeling service, and it is taxable. See Rule 3.357(a)(11) (Nonresidential Real Property Repair, Remodeling, and Restoration; Real Property Maintenance. (Tax Code, §§151.0047, 151.0101, 151.056, 151.058, 151.311, 151.350, 151.429)). The lump-sum price Taxpayer charges its customer includes two taxable services—real property repair and remodeling and a real property service—and is taxable in full. Taxpayer may issue a resale certificate to a third- party hauler. See Section 151.006(a)(1) ("Sale for Resale") and Section 151.302(a) (Sales for Resale). Taxpayer must collect tax from its customer on the single charge for both taxable services.

Complete Demolition

The complete demolition of an existing improvement to real property is neither remodeling nor modification of a real property improvement and is not taxable. See Rule 3.357(a)(11); Comptroller’s Decision Nos. 109,193 (2015), 40,749 (2002), and 34,706 (1997). Waste removal services are taxable. Taxpayer provides both nontaxable complete demolition services and taxable waste removal services for a single charge.

When unrelated taxable and nontaxable services are sold for a single charge, and the portion relating to taxable services represents more than 5.0% of the total charge, the total charge is presumed to be taxable. Rule 3.356(i)(2).

Complete demolition services are unrelated to taxable waste removal services because the two services are readily separable. That is, when a person performs demolition services, the person’s customer may contract with another party for waste removal or may require no waste removal at all. In addition, a person may provide taxable waste removal services outside of a demolition situation. See Rule 3.356(i)(1).

Therefore, when Taxpayer performs nontaxable complete demolition services and taxable debris removal services for a lump sum amount, the total charge is presumed to be taxable if the portion relating to debris removal services represents more than 5.0% of the total charge. Rule 3.356(i)(2). Subject to the other provisions of Rule 3.356(i)(2), Taxpayer may overcome this presumption by submission of documentary evidence that establishes the percentages of the total charge that relate to complete demolition and waste removal services.

If Taxpayer’s debris removal service constitutes more than 5.0% of the lump-sum charge for complete demolition services, the entire charge is presumed to be taxable. Taxpayer is reselling the waste removal service with or as a taxable service and may issue a resale certificate to a third-party debris hauler. See Sections 151.006(a)(1) and 151.302(a).

If Taxpayer’s debris removal service constitutes 5.0% or less of the lump-sum charge to Taxpayer’s customer, the entire charge is nontaxable. Because the charge for the debris removal service is a de minimis component of the nontaxable complete demolition service, Taxpayer is not reselling the debris removal service with or as a taxable item. Taxpayer may not purchase third-party debris removal services tax-free for resale and would be required to pay tax on its purchases from third-party haulers. See Section 151.006(a)(1).

If the Taxpayer makes separate charges for debris removal and complete demolition, and Taxpayer collects tax from its customers on the debris removal service, Taxpayer is selling the service as a taxable item and may issue a resale certificate to purchase the services from third-party haulers.

Comptroller’s Decisions and STAR Documents cited can be found on the Comptroller’s State Tax Automated Research (STAR) system. The Texas Tax Code, Texas Administrative Code, and the STAR system are all accessible from the Comptroller’s website at http://www.comptroller.texas.gov/taxes/.

If you have questions about this private letter ruling, please email us through our website at https://comptroller.texas.gov/web-forms/tax-help/ and reference Private Letter Ruling No. 2017010161.

Sincerely,

Tax Policy Division – Indirect Taxes

Texas Comptroller of Public Accounts

ENDNOTE:

1. Unless otherwise indicated, all references to “Section” are to the Texas Tax Code, and all references to “Rule” are to Title 34 of the Texas Administrative Code.