Are the sub-ballast, riprap, and culvert materials a contractor buys to build new railroad track and roadbeds in Texas exempt from sales tax as supplies essential to running trains?

Plain-English summary

A construction company builds new railroad tracks and roadbeds in Texas, buying materials like sub-ballast (the gravel/rock layer beneath the visible ballast that keeps soil from migrating up into it), riprap (rock used to prevent erosion), and steel or precast concrete culverts (pipe-like structures that let water pass under the track). It asked whether these materials are exempt from Texas sales and use tax when incorporated into new track and roadbed construction. The Comptroller said yes.

Texas already exempts "supplies essential to the operation of locomotives and trains" under its rolling-stock exemption, and its own rule specifically lists rails, ballast, cross ties, and roadbed moisture barriers as qualifying examples. The Comptroller found that sub-ballast, riprap, and culverts function the same way — they're all part of the physical roadbed structure that makes the track usable and stable — so they fall into the same exempt category, even though they're not individually named in the rule's example list. The key distinction: this exemption covers the track and roadbed itself, not separate real property improvements like depots, maintenance facilities, or storage buildings, which remain taxable construction even for a railroad.

Practically, a contractor building new track under a lump-sum contract can give suppliers an exemption certificate instead of paying tax when buying these materials. Under a separated (time-and-materials) contract, the contractor can buy the materials tax-free with a resale certificate and instead accept an exemption certificate from its own railroad customer.

What this means for you

Railroad construction and track-building contractors

Materials that form part of the railroad track or roadbed structure — not just the named examples (rails, ballast, cross ties) but functionally similar items like sub-ballast, riprap, and culverts — qualify for the rolling-stock exemption. Draw a clear line at your job site between track/roadbed work (exempt) and any depot, maintenance-facility, or storage-building work (taxable, ordinary real-property construction).

Suppliers to railroad contractors

Be ready to accept exemption certificates from contractors purchasing these roadbed materials for new track construction, and resale certificates from contractors buying materials to incorporate under a separated contract — both documented paths are confirmed by this ruling.

Accountants and tax professionals

This ruling is a useful precedent for arguing exemption on unlisted-but-functionally-similar roadbed materials under Rule 3.297(e) — the Comptroller reasoned by analogy to the rule's existing examples rather than requiring an exact textual match. Keep the depot/storage-facility carve-out in Rule 3.297(e)(2) in mind, since it's the one hard boundary on this otherwise broad exemption.

Common questions

Q: Does this exemption cover a railroad's depot or maintenance building too?
A: No — items used to build, repair, or maintain separate real property improvements like depots, maintenance facilities, loading facilities, or storage facilities are NOT exempt as rolling-stock supplies, even on the same railroad property.

Q: How does a contractor actually claim this exemption when buying materials?
A: Under a lump-sum contract, the contractor gives its supplier an exemption certificate instead of paying tax. Under a separated contract, the contractor can buy materials tax-free with a resale certificate and accept an exemption certificate from the railroad it's building for.

Q: Does this ruling apply to other unlisted roadbed materials?
A: Not automatically. This is a private letter ruling binding only on the Comptroller as to this taxpayer's specific facts and materials. Other materials should be evaluated against the "essential to locomotive/train operation" standard with a Texas tax professional.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.051, § 151.010, § 151.009 (sales tax imposition; taxable item; tangible personal property)
• Tex. Tax Code § 151.331 (Rolling Stock; Train Fuel and Supplies)
• 34 Tex. Admin. Code § 3.297(e), (e)(2) (Carriers, Commercial Vessels, Locomotives and Rolling Stock, and Motor Vehicles)
• Comptroller's Decision No. 28,061 (1992)
• STAR Accession No. 9205L1169E01 (May 7, 1992)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/202407022L

Original ruling text

July 24, 2024

RE: Private Letter Ruling No. PLR20230718081201

Dear **:

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 July 12, 2023, with additional information provided on Sept. 28, 2023. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

** (Taxpayer) requested guidance on the taxability of incorporated materials used to construct railroads.

Facts Presented

Taxpayer is a Missouri-based construction company involved in building new railroad tracks and roadbeds in Texas. Taxpayer purchases materials such as sub-ballast, riprap, and steel and precast culverts to complete construction of railroads, bridges, rights-of-way, and spanning crossings.

The roadbed is the foundation or structure on which railroad tracks are laid. Sub-ballast is the underlying layer of gravel or rock that forms a transition zone between the ballast and formation level to avoid migration of soil into the ballast, and to reduce the stresses applied to the formation level, 2003 Manual for Railway Engineering, American Railway Engineering and Maintenance-of-way Association, Ch. 4, p. 170. (Available at https://www.arema.org/files/pubs/pgre/PGChapter4.pdf). Ballast consists of a gravel-like substance that is distributed around the railroad ties to create proper drainage of the roadbed and to hold the ties and railroad track in place. See Comptroller Decision No 28,061 (1992).

The Merriam-Webster online dictionary defines “riprap” as “a foundational material of rock used to protect structures against erosion.” See https://www.merriam- webster.com/dictionary/riprap. (Last visited on March 25, 2024). A culvert is a conduit defined by “a pipelike construction of stone, concrete, or metal, that passes under a road, railroad track, footpath, etc. or through an embankment.” Collins Online English Dictionary, https://www.collinsdictionary.com/us/dictionary/english/culvert (Last visited on March 25, 2024). These materials are positioned under the rails during the construction of new railroad tracks.

Question, Ruling, and Analysis

Our restatement of your question is shown below, followed by our response and analysis.

Question: Are incorporated materials such as sub-ballast, riprap, and steel and precast culverts exempt from Texas sales and use tax when used in the construction of railroad tracks and roadbeds?

Ruling: Materials that are incorporated into the construction of railroad tracks or roadbeds are essential to the operation of locomotives and trains and are exempt from sales and use tax. This includes items such as sub-ballast, riprap, and steel and precast culverts.

Analysis: Texas imposes a sales tax on each sale of a taxable item in this state. Section 151.051 (Sales Tax Imposed). A taxable item is defined as tangible personal property and taxable services. Section 151.010 (Taxable Item). Tangible personal property is defined as personal property that can be seen, weighted, measured, felt, or touched or that is perceptible to the senses in any manner. Section 151.009 (Tangible Personal Property).

Materials to be used in construction, including sub-ballast, riprap, steel, and precast culverts are tangible personal property. These items are taxable unless an exemption applies. Sections 151.009, .051.

Section 151.331 (Rolling Stock; Train Fuel and Supplies) exempts supplies that are essential to the operation of locomotives and trains. Rule 3.297(e) (Carriers, Commercial Vessels, Locomotives and Rolling Stock, and Motor Vehicles) provides additional information regarding items that qualify for exemption. Examples include, but are not limited to, telecommunication and signaling equipment, rails, ballast, cross ties, and roadbed moisture barriers. However, items of tangible personal property used to construct, repair, remodel, or maintain improvements to real property such as depots, maintenance facilities, loading facilities, and storage facilities are not supplies essential to the operation of locomotives and trains. Rule 3.297(e)(2).

Sub-ballast, riprap, and steel and precast culverts are similar to and used in the same manner as exempt items listed in Rule 3.297(e)(2) such as ballast and roadbed moisture barriers. These items are therefore essential for the operation of a locomotives and trains and not subject to Texas sales and use tax when used for the new construction of railroad tracks and roadbeds.

A contractor constructing a new railroad track or roadbed under a lump-sum contract may provide an exemption certificate in lieu of tax when purchasing materials that will be incorporated into the railroad track or roadbed. Under a separated contract, a contractor constructing a new railroad track or roadbed my provide a resale certificate when purchasing incorporated materials and accept an exemption certificate from its customer. See, for example, STAR Accession No. 9205L1169E01 (May 7, 1992).

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 accessible at www.comptroller.texas.gov/taxes/.

The Texas Tax Code and Texas Administrative Code 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. PLR20230718081201.

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.