Are a land surveying firm's right-of-way negotiation services for oil and gas pipelines taxable, when billed separately from — or combined with — the firm's taxable surveying services?

Plain-English summary

A professional land surveying firm also provides right-of-way (ROW) services for oil and gas pipeline projects — negotiating easements with landowners, following up to confirm proper post-construction reclamation, verifying owners were paid, and resolving disputes. Sometimes the firm provides ROW services alongside its surveying work; sometimes ROW services stand alone. The firm's invoices always separately state surveying charges from ROW charges, and it also passes through per diem, mileage, and subcontractor day-rate costs. The firm asked a batch of questions: are its ROW agents "landmen" (which would exempt their surveying-adjacent work), are the ROW services taxable in various combinations, and are the pass-through expense charges taxable?

The Comptroller's answers:

• ROW agents are not "landmen." The statutory landman exclusion only applies to people negotiating land/mineral rights for oil and gas exploration and production — ROW agents obtaining easements for pipeline construction don't fit that definition, so the firm's boundary-surveying work for the right-of-way remains taxable surveying.
• ROW negotiation/follow-up services themselves are nontaxable — whether provided stand-alone, alongside surveying (separately stated), or during the construction phase — because negotiating with property owners isn't an enumerated taxable real property service, and it's distinct and separable from the taxable surveying work.
• Per diem, mileage, and subcontractor day-rate pass-through charges follow whichever underlying service they're billed with: nontaxable when billed with nontaxable ROW services, taxable when billed with taxable surveying services — these expense pass-throughs can't be carved out of the tax base for a taxable service.

What this means for you

Land surveying, right-of-way, and pipeline-infrastructure service firms

Keep ROW negotiation/follow-up work separately stated from surveying work on every invoice — this ruling confirms that clean separation lets the nontaxable ROW piece stay nontaxable, even when sold alongside taxable surveying in the same engagement. Don't assume that just because ROW work often accompanies pipeline surveying, the whole package becomes taxable.

Businesses whose staff might be mistaken for "landmen"

Just doing right-of-way or land-access work for an oil and gas-adjacent project doesn't make your staff "landmen" under the tax exemption — that term is reserved for people negotiating actual land or mineral rights for exploration/production purposes, not people securing construction easements.

Accountants and tax professionals billing pass-through expenses

Per diem, mileage, and subcontractor day-rate reimbursements are not automatically excludable from tax just because they're framed as "reimbursements" — under Rule 3.356(i)(3)'s logic (also applied elsewhere to hotel/meal/travel charges), they inherit the taxability of whichever service they're billed alongside.

Common questions

Q: Is right-of-way negotiation work for a pipeline project ever taxable?
A: Not under this ruling — ROW negotiation and follow-up services are not an enumerated taxable real property service, regardless of whether they're sold alone or alongside taxable surveying (as long as they're separately stated).

Q: What makes someone a tax-exempt "landman" versus a taxable ROW agent?
A: A landman negotiates or secures actual land or mineral rights for oil/gas exploration, exploitation, or disposition. A ROW agent, even on an oil/gas pipeline project, is instead obtaining construction easements — a different function that doesn't qualify for the landman exclusion.

Q: Are pass-through costs like mileage or per diem always nontaxable "reimbursements"?
A: No — they take on the tax status of the service they accompany. Billed with nontaxable ROW work, they're nontaxable; billed with taxable surveying work, they're taxable.

Q: Can another surveying or ROW services firm 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, rules, and decisions:

• Tex. Tax Code § 151.0048(a)(6) (Real Property Service — surveying); § 151.0048(b-1) (landman exclusion)
• 34 Tex. Admin. Code Rule 3.356(a)(9) (surveying definition); Rule 3.356(i) (unrelated-services bundling rule)
• Tex. Occ. Code § 1702.324(a) ("Landman" definition, incorporated by the Comptroller)
• Comptroller's Decision No. 44,782 (2008) (describing typical landman functions)
• Tex. Tax Code § 151.007(a)(1)-(4) ("Sales Price" — pass-through expenses taxed with the underlying 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/201807015L

Original ruling text

July 11, 2018

RE: Private Letter Ruling No. 2017010110

*, Taxpayer No. *

Dear Mr. Frazer:

We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters.[1] We are responding to your request dated Aug. 13, 2015. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

You requested guidance on the taxability of right-of-way (ROW) services performed by a professional land surveying firm.

Facts Presented

*** (Taxpayer) is a professional land surveying firm that also provides ROW and drafting services to its clients. These services primarily relate to the routing and construction of oil and gas pipelines and associated infrastructure.

The Taxpayer’s ROW agents provide the following ROW services:

negotiating with property owners to purchase land or obtain easements for pipelines or other project;

following up with property owners to ensure their property was properly reclaimed after construction of the pipeline or other project;

checking whether property owners received payment and related paperwork; and

working with property owners to resolve any ongoing issues.

Taxpayer may provide ROW services on a stand-alone basis or in conjunction with surveying services. Taxpayer’s invoicing breaks out the surveying and ROW services provided to customers.

Taxpayer also charges customers: a per diem on behalf of its agents, which is billed as a pass-through charge with no additional mark-up; mileage expenses for use of vehicles; and a reimbursement of day rates paid to subcontractors.

Questions, Rulings, and Analysis

Your questions are restated below, followed by our response and analysis.

Question One: Are Taxpayer’s ROW agents landmen as discussed in Section 151.0048(b-1) (Real Property Service)?

Ruling One: No, Taxpayer’s ROW agents are not landmen for the purposes of Section 151.0048(b-1).

Analysis

Section 151.051(a) (Sales Tax Imposed) imposes sales tax on “each sale of a taxable item in this state.” Section 151.010 (Taxable Item) defines a taxable item as “tangible personal property and taxable services.” Section 151.0101 provides a list of taxable services and includes real property services.

Section 151.0048(a)(6) defines real property services and includes “the surveying of real property.” By rule, the Comptroller has defined surveying of real property as, “[A]ctivities performed to determine or confirm the boundaries of real property, or to determine or confirm the location of structures or other improvements in relation to the boundaries of the property...” Rule 3.356(a)(9). Right-of-way surveying is specifically listed as an example of a taxable real property surveying services.

The definition excludes services performed by a landman if the services are necessary to negotiate or secure land or mineral rights for acquisition or trade. Section 151.0048(b-1). For purposes of administering Section 151.0048(b-1), the Comptroller will use the definition of a landman found in Occupations Code Section 1702.324(a) (Certain Occupations). That section states:

(a) For the purposes of this section, "landman" means an individual who, in the course and scope of the individual's business:

(1) acquires or manages petroleum or mineral interests; or

(2) performs title or contract functions related to the exploration, exploitation, or disposition of petroleum or mineral interests.

The Comptroller has long recognized that a landman is a person typically contracted or employed by oil companies for the purpose of gaining access to explore for oil and gas. For example, Finding of Fact No. 10 in Comptroller Decision 44,782 (2008) states:

“Petroleum landmen typically work for oil and gas companies, both big and small. Once a geologist has identified an area of interest, the geologist will mark a map of landownership and give it to a landman to determine whether the land is available. If the land is not currently under lease or held by an operator who is already producing gas on the land), then the landman will verify ownership and/or will contact the owner to verify that the land is available. If enough of the land is available for leasing and an oil and gas company is interested in leasing the land, the landman will go to the courthouse or abstract office to research the land history to determine who the mineral owners are. Landmen also negotiate leases with property owners and may perform other related services.”

A ROW agent and a landman may provide some of the same functions. However, a ROW agent is generally engaged in obtaining an easement for construction of roads, bridges, oil and gas pipelines, and the associated infrastructure. For purposes of excluding a taxable surveying service described in Tax Code Section 151.0048(b-1), the landman must be performing a surveying service, which is necessary for the purpose of the exploration, development, or production of oil, gas, or other related mineral or petroleum interests.

Surveying real property is a taxable service. Because Taxpayer’s ROW agents are not landmen, Taxpayer’s charges for surveying to determine or confirm the boundaries of the right-of-way and the boundaries of property that the pipeline will cross are taxable.

Question Two: Are Taxpayer’s preliminary ROW services provided in conjunction with Taxpayer’s surveying services subject to sales tax?

Ruling Two: No, Taxpayer’s separately stated preliminary ROW services provided in conjunction with Taxpayer’s surveying services are not taxable.

Question Three: Are Taxpayer’s ROW services provided in conjunction with the construction phase subject to sales tax?

Ruling Three: No, Taxpayer’s separately stated ROW services provided in conjunction with the construction phase are not taxable.

Question Four: Are standalone ROW services, when not coupled with any other service, subject to sales tax?

Ruling Four: No, Taxpayer’s charges for stand-alone ROW services and charges for ROW services that are separately stated from charges for taxable surveying services are not taxable.

Analysis:

Unlike right-of-way surveying, Taxpayer’s ROW services to negotiate and follow up with property owners are not taxable real property services.

As stated in your letter, Taxpayer’s ROW services may be secured as a stand-alone service or in conjunction with Taxpayer’s surveying services. In either event, Taxpayer's invoicing to its customer separately states the services by service type.

Taxpayer’s stand-alone ROW services to negotiate and follow-up with property owners are unrelated to the taxable surveying services because the services are distinct and identifiable, are not a taxable service under the Tax Code, and can be provided on a stand-alone basis. See Rule 3.356(i). Taxpayer is liable for collecting and remitting tax only on taxable surveying charges, not on its charges for ROW services.

Question Five: Are per diem charges related to Taxpayer's employees or subcontractors, day rates paid to subcontractors, or mileage charges subject to sales tax?

Ruling Five: Per diem charges, day rates paid to subcontractors, and mileage billed in conjunction with Taxpayer’s ROW services are not taxable. Per diem charges, day rates paid to subcontractors, and mileage billed in conjunction with Taxpayer’s taxable surveying services are taxable.

Analysis

In relevant part, Tax Code §151.007(a)(1) through (4) states, “The ‘sales price’ of a taxable item means the total amount for which the taxable item is sold without a deduction for the cost of the materials used, labor or service employed, other expenses, and the cost of transportation incident to the performance of a taxable service.”

Taxpayer’s per diem charges, reimbursements for day rates paid to subcontractors, and mileage charges billed to the customer in conjunction with the provision of the ROW services are not taxable because the ROW services are not taxable. Taxpayer owes sales tax on any taxable items purchased and used in the performance of the nontaxable ROW services.

The per diem charges, reimbursements for day rates paid to subcontractors, and the mileage charges Taxpayer bills in conjunction with the taxable surveying services are taxable as part of the sales price of the surveying service. Rule 3.356(i)(3) states: “Charges for services or expenses directly related to or incurred while providing the taxable service are taxable and may not be separated for the purpose of excluding these charges from the tax base. Examples include charges for meals, telephone calls, hotel rooms, or airplane tickets.”

Comptroller’s Decisions 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 accessible at 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. 2017010110.

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.