Which tree-service, land-clearing, stump-grinding, demolition, and debris-hauling charges did Texas treat as taxable?

Plain-English summary

Texas gave a tree-service business a detailed activity-by-activity answer. Most ordinary cutting, trimming, stump grinding, and stand-alone hauling was taxable. Important exceptions included land clearing done as construction-site preparation, complete demolition-and-removal jobs, stump grinding on pasture land or lots for new homes, and tree work around high-line wires.

The billing structure matters. Clearing a construction site is nontaxable, but hauling the debris away is taxable. If the business bills one lump sum and the hauling portion is more than 5% of the total, the Comptroller said the entire charge is taxable.

The letter also explained that a service provider selling to the end customer collects the tax. A subcontractor or another taxable-service provider may accept a resale certificate only when the buyer is actually reselling that service. An exempt entity may provide an exemption certificate when it is the consumer.

What this means for you

Tree-service and land-clearing businesses

Classify each job by what you are doing and why. Construction-site preparation may be nontaxable even though aesthetic tree work or stump grinding at an existing property is taxable. Separately state taxable hauling when combining it with nontaxable clearing.

Contractors and subcontractors

The party selling the taxable service to the final customer generally collects the tax. A subcontractor may take a resale certificate when its customer will resell the service, but otherwise the subcontractor should collect tax.

Common questions

Q: Is clearing land for a new home or business taxable?
A: The letter says no when it is construction-site preparation.

Q: Is hauling the cleared debris taxable?
A: Yes. If clearing and hauling are lumped together and hauling exceeds 5% of the total charge, the letter says the whole charge is taxable.

Q: Are all stump-grinding jobs taxable?
A: No. The letter lists stump grinding at parks, fence lines, golf courses, and existing homes or businesses as taxable, but work on lots for new homes and pasture land as nontaxable.

Q: Can I rely on this 1988 letter today?
A: Treat it as historical guidance. It was based on one taxpayer's facts, and STAR documents may not reflect current law or Comptroller policy.

Citations and references

• Rule 3.356(k)
• Rule 3.356(c)(2)
• Section (d) of Rule 3.356, as referenced in the letter

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8806L0902G01

Original ruling text

June 3, 1988

Dear ***

I am responding to your request for sales tax information concerning your tree
service business.

Taxable service providers collect sales tax based on their place of business;
however, if the place of business is outside a taxing authority (city, county,
MTA and CTD) and the service is provided to a customer inside the taxing
authority, then the service provider must collect the city, county, MTA, or CTD
tax. Therefore, when you provide taxable tree services outside the city limits
you should collect 6% state tax. But when you provide taxable tree service
inside the * city limits you should collect 7% tax. See Rule 3.356(k)
enclosed. * county does not impose the county tax. I am also enclosing
a brochure that lists the tax rates for Texas.

You also asked who should collect the sales tax when you do a job with other
tree businesses and "divide the money." More information is needed to determine
exactly who is responsible for collecting and reporting the sales tax. For
example, if you are a "sub-contractor" on the job you would probably accept a
resale certificate from the person that is reselling the service to the end
consumer. However, if you were the seller to the end consumer, then you should
collect and report the sales tax and give a resale certificate to the other
business that perform taxable services that you resale. When you perform
taxable services for other companies sales tax is still due. However, they may
issue a resale certificate when they are in turn reselling the service. If they
don't provide a resale certificate to you, then you should collect and remit
the sales tax. See Rule 3.356 (c)(2)

An exempt entity may provide an exemption certificate in lieu of the tax when
the exempt entity is the consumer of the taxable service See Section (d) of the
rule.

I have restated the list of services performed by your business and indicated
the taxability of each item.

1. Cutting, trimming, and hauling trees away from the following structures at
   existing home or businesses:

A. Home and business - taxable
B. Roads or streets in subdivisions - taxable; not taxable if public roads,
etc.
C. Fence lines - taxable
D. Pipe lines - taxable
E. High line wires - not taxable
F. Golf courses that have hanging limbs and dead trees - taxable

2. Clearing land and hauling debris to make room for the following structures:
   (Site preparation jobs)

A. Homes and business - not taxable
B. Roads, streets and highways - not taxable
C. Pipe lines - not taxable
D. Fence lines - not taxable
E. High line wires - not taxable
F. Parks - not taxable
*See note below

3. Stump grinding:

A. Parks - taxable
B. Fence lines - taxable
C. Golf courses - taxable
D. Lots for new homes - not taxable (site preparation)
E. Around homes and business - taxable
F. Pasture land - not taxable
G. Roads, streets in subdivision - taxable; not taxable if public roads, etc

4. Demolishing:

A. Tearing down buildings, homes, or businesses, and hauling the complete job
away, not taxable *See note below.

5. Hauling

Someone else did the clearing, and you haul the trees, building and debris
away.

A. Lots for homes building for business - taxable
B. Roads, street in subdivisions - taxable
C. Fence lines - taxable
D. High line wire "electric" - taxable
E. Pipe line - taxable
F. Pasture land - taxable
G. Buildings that are torn down and piled up - taxable.

*NOTE: Clearing land for a construction site is not taxable. Hauling away
debris is taxable. If you bill a lump-sum charge for the total job (clearing
and hauling) and the charge for hauling is more than 5% of the entire job, then
the total charge is taxable.

If we can be of further assistance, please write to us or call toll free from
anywhere in Texas at 1-800-252-5555. Our regular number is 512 463-4600.

Sincerely,

Tax Policy Division