How did Texas tax hot-tapping labor on plant transmission lines and other pipe, tanks, or pressurized vessels?

Plain-English summary

Hot tapping cut into operating pipe, tanks, or pressurized vessels without stopping operations or losing product. For taps on plant transmission lines, Texas treated the work as repair or remodeling of a nonresidential real-property improvement.

Labor for that nonresidential real-property work was taxable from January 1, 1988 but had not been taxable before then. Labor to repair or remodel tangible personal property had been taxable since October 2, 1984. Materials were taxable to the end consumer.

The letter warned that invoices not clearly identifying real-property repair or remodeling would be presumed to cover tangible-personal-property work and treated as taxable.

Common questions

Was plant-pipeline hot tapping taxable? Labor was taxable for work from January 1, 1988 under the letter.

What about tangible-personal-property hot tapping? Repair or remodeling labor had been taxable since October 2, 1984.

Why did invoice descriptions matter? Unclear invoices were presumed to cover taxable tangible-property work.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8811L0906B10

Original ruling text

November 1, 1988

Dear ****:

I am responding to your letter of October 13, 1988, requesting
clarification on the taxability of hot tapping.

Hot tapping is the process of cutting holes in pipe, tanks, or any
pressurized vessel without interrupting operations or causing loss
of product. Information received from your letters dated August 16,
1988, and October 13, 1988, and the telephone conversations held with
members of your company and our agency clarified that some of the hot
taps in question were performed on transmission lines located in the
* production plant near *, Texas.

Based upon this information the hot taps in these situations are
considered the repair or remodeling of a non-residential
improvement to real property. The labor to repair or remodel non-
residential improvements to real property became taxable January
1, 1988. The labor performed prior to January 1, 1988, was not
taxable. The materials are taxable to whomever is the end
consumer of the materials used to perform the service and the end
consumer of the materials incorporated into the property both
before and after January 1, 188. The labor to repair or remodel
tangible personal property has been taxable since October 2, 1984.

Please be advised that this letter is not intended to alter the
determination of the auditor on site. It is, however, intended to
provide information to assist yourself and possibly the auditor to
determine the taxability of these services. Any invoices that are
not clearly marked as being repair or remodeling to an improvement
to real property will be presumed to be repair or remodeling of an
item of tangible personal property and taxable.

I am enclosing rules 3.291 and 3.357. These rules explain the
application of taxes by contractors and repairmen/remodelers. The
definitions of these terms are found in rule 3.357.

This opinion is based on the facts presented. If there are any
additional or different facts, the opinion may change.

You may write me at Tax Correspondence, Comptroller of Public Accounts.

Sincerely,

Tax Policy Division
Tax Correspondence