How does Texas tax pipeline painting, repairs, replacement, relocation, land clearing, and material handling charges?

Plain-English summary

A pipeline contractor asked how Texas sales tax applies across the range of services it performs. The Comptroller answered item by item, mostly under Rule 3.357 (real property repair and remodeling):

1. Pipeline painting — presumed taxable unless it qualifies as maintenance under Rule 3.357(c)(3). If it qualifies as maintenance, the customer must issue a properly completed exemption certificate.
2. Pipeline repairs — taxable unless the loss or damage was caused by fire, flood, or natural disaster (Rule 3.357(c)(4)).
3. Replacement in place vs. new location:
   • Laying a new pipeline and taking up/removing the old one at the same location is taxable remodeling.
   • Changing a pipeline's diameter is remodeling (taxable).
   • Laying a pipeline at a new location is new construction, which is not taxable — but the take-up (removal) of the old line is taxable.
4. Lowering a pipeline is relocation, and relocation is not taxable.
5. Land clearing off the right-of-way is taxable unless the clearing is part of new construction (e.g., clearing land to lay down a pipeline or construct a building).
6. The 15% handling charge on materials in third-party transactions is taxable as part of the sales price.

The Comptroller added two practical points: the work in items 1, 2, 3, and 5 is presumed taxable unless the customer issues an exemption certificate stating why it qualifies, and the contractor must collect local sales/use tax based on the location of the pipeline (the customer may help, but the responsibility is the contractor's).

What this means for you

Pipeline contractors

Most of your service work — painting, repairs, in-place replacement, diameter changes, right-of-way clearing — is presumed taxable. The nontaxable pieces are specific: laying pipe at a new location (new construction), lowering/relocating an existing line, and repairs from fire/flood/natural disaster. Know which bucket each job falls in.

Exemption certificates and local tax

For the presumed-taxable items (painting, repairs, replacement, clearing), collect tax unless the customer gives you an exemption certificate explaining why the job qualifies (e.g., painting as maintenance, disaster-caused repairs). And remember to collect the correct local sales/use tax for the pipeline's location — that duty is yours.

Handling charges are part of the price

A 15% handling charge on materials in third-party deals is part of the taxable sales price — don't treat it as a separate nontaxable fee.

Common questions

Q: Is pipeline painting taxable in Texas?
A: It's presumed taxable unless it qualifies as maintenance under Rule 3.357(c)(3), in which case the customer must provide an exemption certificate.

Q: When are pipeline repairs not taxable?
A: When the loss or damage was caused by fire, flood, or natural disaster (Rule 3.357(c)(4)).

Q: Is replacing a pipeline taxable?
A: Replacing it in the same location (or changing its diameter) is taxable remodeling. Laying pipe at a new location is nontaxable new construction, but removing the old line is taxable. Simply lowering/relocating a line is not taxable.

Q: Who collects the local tax?
A: The contractor must collect local sales/use tax based on the pipeline's location; the customer may assist, but the responsibility is the contractor's.

Q: Can I rely on this 1988 letter today?
A: Treat it as guidance only. It is based on the facts presented and can change with different facts; on the STAR system it binds the Comptroller only as to the taxpayer it was issued to and may no longer reflect current policy.

Citations and references

• 34 Tex. Admin. Code Rule 3.357 — real property repair and remodeling; the letter cites section (c)(3) (painting as maintenance) and section (c)(4) (repairs from fire/flood/natural disaster), and applies the remodeling-versus-new-construction distinction. The latest rules on real property services and repair/remodeling were enclosed.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8806L0903D05

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS

STATE OF TEXAS

AUSTIN, 78774

BOB BULLOCK

Comptroller June 14, 1988

Dear *:

Thank you for your letter of May 25, 1988, concerning the taxability of the

services you provide.

1. Pipeline painting is presumed to be taxable unless it qualifies as

maintenance as defined in section (c)(3) of Rule 3.357. If the painting

qualifies as maintenance, the customer must issue you a properly com-

pleted exemption certificate.

2. Pipeline repairs are taxable unless the loss or damage is caused by

fire, flood or natural disaster. See section (c)(4) of Rule 3.357.

3. A contract calling for the laying of a new pipeline and the taking up

and removal of the old pipeline at the same location is taxable as remod-

eling. Changing the diameter of a pipeline is remodeling. The lay down

of a pipeline at a new location is considered new construction which is

not taxable; the take-up should be taxable.

4. The lowering of a pipeline is considered relocation. Relocation of a

pipeline is not taxable.

5. Land clearing off the right of way is taxable unless the clearing is

being done as a part of new construction, e.g., clearing land for laying

down a pipeline or construction of a building.

6. The 15% handling charge on materials in third party transactions is

taxable as part of the sales price.

The work performed in transactions 1,2,3, and 5 are presumed to be taxable

unless the customer issues an exemption certificate stating why the work

qualifies for exemption.

You are required to collect local sales use tax based on the location of the

pipeline. You have the responsibility for properly collecting local taxes;

however, your customer may assist you.

I am enclosing the latest rules on real property services and real property

repair and remodeling.

This opinion is based on the facts presented. If there are additional or

different facts, the opinion may change.

If you have any questions or need more information, please call our toll-free

number 1-800-531-5441. The regular number is 512/463-4600. You may write me

at Tax Correspondence, Comptroller of Public Accounts.

Sincerely,

Eddie C. Washington

Tax Correspondence