How did Texas tax industrial tank washing, plant labor, maintenance, demolition, debris removal, and new-tank construction?

Plain-English summary

Hydro-washing labor used to clean a storage tank for inspection and preparation for another product was not taxable, but the contractor owed tax on rags, solvents, soaps, and other materials consumed in the job.

Other plant labor depended on what workers actually did, so invoices needed enough detail to identify the activity. The letter treated regularly scheduled work that sustained functioning real-property improvements as nontaxable maintenance, while repair, restoration, or remodeling could be taxable. A customer could give a good-faith exemption certificate claiming maintenance, but documentation could not turn an actual repair into maintenance.

When taxable and nontaxable labor appeared on one invoice without separate charges, the entire invoice was taxable. Demolishing a building down to the slab was nontaxable; debris removal was taxable; one combined demolition-and-removal fee was fully taxable; and demolition performed as part of remodeling was taxable.

Large industrial tanks attached to concrete foundations were real-property improvements, and labor to construct new tanks was not taxable under the letter's 1989 treatment.

Common questions

Was tank hydro-washing labor taxable? No, for the inspection-and-preparation job described.

Were the washing materials taxable? Yes, to the contractor.

Was scheduled maintenance on functioning realty taxable? No, under the criteria stated in the letter.

Was demolition taxable? Taking a building down to the slab was not, but debris removal and demolition within a remodeling job were taxable.

What if taxable and nontaxable work was not separately stated? The total invoice was taxable.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8908L0948E07

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

August 18, 1989

Dear ***:

I just want to take a minute to follow-up our phone conversation
with a written response. Your letter is restated in part with
responses below:

Question: In an industrial oil terminal, should we be awarded a
contract to hydro-wash a storage tank in order to inspect the
inside of the tank and prepare it for another product-is such work
taxable -are only the materials used (rags, solvents, soaps, etc.)
is the labor taxable?

Answer: The labor charge is not taxable. You would owe tax on
the materials you use to do the job.

Question: In the same type of plant should the owners request a
labor force to do some labor in the plant, is there a sales tax on
that labor?

Answer: The work would be taxable or not taxable depending on
what was done. That means its important to determine what work
your men are performing and list that information on your invoices
so that you can bill the appropriate amount of tax.

As you know, labor to repair, restore, remodel or maintain
tangible property became taxable in October of 1984. In October
of 1987 charges for building and grounds cleaning became taxable.
And, on January 1, 1988, labor to repair, restore or remodel non-
residential real property became taxable. I am enclosing Rules
3.291, 3.356, and 3.357 for your reference.

Labor to maintain improvements to realty are not taxable. If an
activity is performed on property that is functioning and the
effect is to support, sustain or continue the condition of the
property instead of restoring, enhancing or improving some quality
such as efficiency, and if the activity is performed at
regularly scheduled intervals then the activity will be presumed
to be maintenance instead of repair, remodeling or restoration.

If one of your clients claims that a certain job qualifies as
maintenance rather than restoration, and you accept an exemption
certificate to that effect from him in good faith, you would not
be required to charge him the tax. On the other hand, no amount
of documentation will cause a repair activity to be classified as
maintenance.

It is important to note that when taxable and non-taxable labor
are billed on the same invoice and the charges are not separately
stated, the total invoice amount will be subject to tax.

You had asked about the taxability of charges for real property
demolition. Again, it depends on what is being done. If you take
a building down to the slab, the charge for demolition is not
taxable. However, if you also remove the debris, you would need
to collect tax on the charge for waste removal. If you charged a
single fee for both, the total charge would be taxable. When
demolition is done as a part of a remodeling job, the demolition is
taxable.

You had also asked me to comment on the construction of new tanks.
I am referring to large industrial tanks that are attached to
concrete foundations. These tanks are improvements to realty and
the labor to construct them is not taxable.

Feel free to call or write me if you have questions. You can
reach me by calling toll free 800-531-5441 ore FAX (512) 4774-1643.

Sincerely,
Al Van Allen
Taxability Section
Legal Services Division