Which separately contracted pipeline inspection, cleaning, testing, repair, valve, boosting, evacuation, and temporary-equipment services were taxable?

Plain-English summary

Pipelines were improvements to real property, and the total charge for repairing, remodeling, restoring, or modifying nonresidential realty was taxable. Because the owner contracted separately with providers for different phases, the Comptroller classified each activity on a stand-alone basis.

Pipeline cleaning, linalog inspection itself, X-ray inspection alone, and hydrostatic pressure testing were nontaxable. The service provider paid tax on items used for cleaning. Equipment the owner bought or rented without an operator for inspection was taxable, as were a surveyor's charge to locate the existing pipeline and the charge to dig up the repair area.

Cutting out defects and welding new pipe in place was taxable repair. Valve-station work and permanent in-line valving were taxable repair or remodeling.

The May letter initially treated capacity boosting and pipeline evacuation as taxable because they facilitated repair. The later September 19 correction made them nontaxable when the owner contracted directly with their providers because each was nontaxable by itself. If the general contractor supplied either service as part of the overall repair, the charge became taxable.

The sale and installation or rental of a temporary flare system and related piping and instrumentation were taxable tangible-personal-property transactions. A third party's separate installation charge was not taxable.

Common questions

Was pipeline cleaning taxable? No, when separately provided.

Were inspection and hydrotesting taxable? The inspection-only and stand-alone testing charges identified in the letter were not.

Were physical repairs and permanent valves taxable? Yes.

Were boosting and evacuation taxable? Not when separately contracted directly, but yes when supplied by the general contractor as part of the repair.

Was a third party's separate temporary-flare installation charge taxable? No.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8909L0969F05

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

September 19, 1989

Dear **:

As I explained in my letter dated August 7, 1989, I sent copies of all
the
documents and our previous correspondence to the Taxability Section in
Legal
Services for review. I apologize for the time it has taken to respond to
your questions.

Mr. Al Van Allen of that section told me that my letter dated May 9, 1989
is
correct as written except for parts 1 and 2 of Section H pertaining to
boosting capacity on an in-service line and the pipeline evacuating.
These
services are not taxable in your case because ** contracted
directly
with the service provider and the services provided are, by themselves,
not
taxable services. If either of these services had been performed by the
general contractor, then the charges for these services would have become
taxable because they would have been part of the overall repair service
provided by the contractor.

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 1-800-252-5555. The regular number is 512/463-4600. You may
write me
at Tax Correspondence, Comptroller of Public Accounts.

Sincerely,
Julie Pesl
Tax Correspondence

May 9, 1989

Dear **:

Thank you for your letter of April 28, 1989 concerning the various
activities included in the inspection and renovation of an existing
pipeline.

You indicated in our telephone conversation that ** hires a
general contractor to oversee the entire project and supervise the
subcontractors. **** directly enters into contracts with the
subcontractors for various phases of the project.

Pipelines are considered improvement to real property. The total
charge for repair, remodeling, restoration, or modification of
nonresidential real property is taxable. Since ** contracts
separately for the various activities that you listed in your
letter I will indicate the taxability of each on a stand-alone
basis.

A. Pipeline Cleaning
This is a nontaxable service. All items used to provide the
service are taxable to the provider of the service.

B. Linalog Inspection
The linalog inspection itself is not taxable. Any equipment
purchased or rented by ** without an operator for use
by a contractor in this phase is taxable to **. The
charge by a surveyor to locate an existing pipeline is
taxable. The charge to dig up the area to be repaired is
also taxable.

C. Repairs (cutting out defects and welding new pipe in place)
The total charge for repairing the pipeline is taxable.

D. Xray Inspection
A charge for inspection only is not taxable.

E. Hydrotest Pressure Testing
Nontaxable service on a stand-alone basis.

F. Pipeline cleaning
See #A above.

G. Valve Stations
The total charge is taxable as repair and/or remodeling of
real property.

H. Miscellaneous
Boosting capacity on an in-service line while repairing
another pipeline - This service is not in itself taxable;
however, since it is done to facilitate the repair work, it
is taxable. The service provider will owe tax on all equip-
ment that it uses to provide the service. Any equipment that
** provides is taxable to **.

Evacuating the pipeline to be repair - same as preceding
paragraph

Installing in-line valving (remains a permanent part of pipe-
line) - Taxable remodeling of real property

Installing a temporary flare system and associated piping and
instrumentation - The total charge for sale and installation
or rental of tangible personal property is taxable. Third-
party installation charges are not taxable, however.

This opinion is based upon the facts you presented. If there are
additional or different facts, this opinion may change.

Please feel free to contact me if you have any additional
questions. You may write me, call toll-free 1-800-531-5441 from
anywhere in the United States or phone 512/463-4685.

Sincerely,
Julie Pesl
Tax Correspondence